I believe the changes introduced by commit https://github.com/ValveSoftware/Proton/commit/af9eb0240116d5f89ad6346ddcb54c314de399ce have not been pushed to steam users yet, my local proton file doesn't reflect the changes, despite restarting steam and launching a steam play title (which supposedly is the way to trigger a proton update).
Can you check your local proton file and see if it has the changes introduced by the aforementioned commit? If not, you can replace it by the file in the repo and see if that works (or wait till it is pushed to steam users).
Replacing proton with the version from master had no effect either. using user_settings.py does generate the log file however.
Did you make the file you replaced it with executable? I tried the option with Hitman: Absolution and it worked:

Yes, the file is executable.
Did you set the launch option to PROTON_LOG=1 or PROTON_LOG=1 %command%? If the former, try the latter, if not then maybe you could try setting it up in user_settings.py instead and if it still doesn't work then I have no clue :/
Works with PROTON_LOG=1 %command% so closing as working as intended I suppose. Still think its odd that %command% is needed.
I believe the reason for the %command% is because by default the launch options are meant for the game executable and thus are appended to the end of the launch game command, if the env variable is after the launch game command then it won't have any effect on the game.
%command% allows to prepend anything to the launch game command, which is why it's the recommended way of using these variables in the README.
Hope that explains it :)
PROTON_LOG=1x3 2018-08PROTON_LOG=1`x1 2018-08
When setting PROTON_LOG=1 in the game "Set Launch Options" the environment variable has no effect and is appended to the executable launch string. No log file is generated under $HOME as specified https://github.com/ValveSoftware/Proton#runtime-config-options
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