Activity Level Setting vs. Actual Daily Activities

I set mine to active (roughly, I actual have really specific calorie/macro goals that I've calculated elsewhere) and don't enter any exercise as it's simply too much planning for me to adjust my calorie intake and enter every single exercise I do and adjust my intake accordingly. Some days my deficit is probably greater than others because I am more active on those day, but....meh. It all evens out in the wash. And my deficit is pretty mild, so it's not like I'm under fueling myself in any event.

You're right: choosing a higher activity level because you exercise AND logging exercise would result in double dipping, so should be avoided.

Using MFP as intended = using the activity level to reflect your daily activity not counting intentional exercise and then logging exercise separately (and eating back a reasonable estimate of the calories burned through exercise).
Which doesn't mean you can't use MFP differently, of course.

It will depend on several factors, the main one being: how regular is your exercise? If your exercise varies from week to week, using your current method might not be the best idea, if you are very regular in your exercise it can work. You don't need to have a deficit/the same deficit every day, as long as you're in a deficit on average.
If you have an inactive week, you do need to watch out and eat less than your calorie goal.

Personally, your current method is not for me. I'm quite irregular in my exercise burns (and step count) from week to week. And giving myself a fixed calorie goal would put pressure on me to exercice with a regular schedule, mental pressure I do not want in my life. Or if I simply was less active for a few weeks, I'd stop losing weight or even gain weight.

My method is: I'm set at sedentary and my activity tracker is linked to MFP, which gives me extra calories based on extra general activity (steps) and exercise. And I eat every delicious extra calorie that gives me 🙂

You mention Sedentary and exercise in the same sentences but that's not how this site works. You could be Sedentary and run a marathon every day or Highly Active and do no exercise and every other possible combination as there is no overlap between the two things - when using this tool as designed.
You haven't mentioned anything that would indicate what your activty setting should be (job, everyday movement patterns excluding purposeful exercise) so there's no way to answer if you should even consider Sedentary.

I set mine to Lightly Active when I was working full time and despite a desk job that setting best reflected my total non-exercise activity. I ate back exercise on top of that.
When I retired I bumped my activity setting to Active - because I am! And exercise calories on top.

Think you first need to decide if you prefer a variable daily goal (MyFitnessPal) or a same every day goal (averaging out both your activity and exercise, average TDEE method). Over an extended period of time they should work out fairly similar. If you do choose the TDEE method beware that fudging MyFitnessPal by rolling your activty and exercise together won't use the correct BMR multiplier. Not a problem if you are using your own data rather than a calculator.

My main exercise is cycling and that gives me a hugely variable daily, weekly and even seasonal amount of calories burned so the MyFitnessPal method is far superior for me and I'd also find a same every day calorie goal to be like a never ending restrictive diet. Apart from the mathematics how you feel also makes a difference for adherence.

I am set to sendentary and eat back 50-75% of my earned calories. I exercise in some manner every day but the intensity changes i.e. some days its a dog walk and yoga, other days its a heart pumping cross country ski, other days its weights and a hike with dogs. Most days I hit 10,000 steps. I have found this way works best for me.

I am less than Sedentary but obviously have it set to sedentary.

After the Garmin syncs and I have calories taken away is when I get the less than applied.
Unless I exercised that day, in which case I might gain 300 in workout, but still lose 150.

While winter isn't as variable for workouts as other seasons nor the huge calorie burn, and I could attempt your method - I prefer the reminder daily that it's important to know the fact that when you do more you can eat more, but when you do less you sure better eat less.

The MFP activity levels really don't ramp up enough to cover workouts unless they are low intensity low calorie burn - just like extra daily activity might be.
As suggested you can watch and adjust after a month.

But then you have turned MFP into most other sites where exercise is accounted for in your daily eating goal really.
So to actually lose weight at desired rate - you better do the exercise.
That's what causes the confusion with many people thinking you have to exercise to lose weight.

If you are knowledgeable & experienced as many of the prior posters are on the matter - it still works.
But if not, it can leave you confused as to results.
And if life changes (daily or exercise) - it can take a month of results to then have an amount to tweak.
So again knowledgeable on why weight can change, what's valid and actionable, what's not.

I spend most of my day sitting, either in front of the computer or reading or watching TV. For about 2 hours a day, I exercise - walking, running, biking, yoga, etc. What I do and how long varies by the day. Some days I run 6 miles, some 12, some none. My walks can be anything from 1.5 miles to 5 or 6. It has worked well for me to set my activity level at sedentary and then eat back all my exercise calories. I actually burn more calories than MFP gives me for my exercise, perhaps a bit of afterburn or maybe just inaccurate logging of my food. (I don't weigh what I eat and since I split meals with my husband, my half isn't always exactly half.) In any case, I lost weight when I was trying to do that and have now maintained that loss for several years.