Are you sure that you aren’t just using the default “Import notes” command by mistake? You need to use the command associated with the import format you’ve configured.
Since you seem aware of the distinction, this looks like a mismatched expectation. “Import notes” not applying templates is by design, it’s not a bug. It’s just meant to import the notes associated with the item with the default formatting provided by Zotero.
You should remove the solution label from your comment, as it misleadingly suggests that this is a bug, when it really is just a case of using the wrong command.
What you describe as a workaround is just correct usage of the plugin.
Please share your zotero integration template, if you need further help customizing the content and look of your source notes.
Btw, for bulk imports, you can use this script of mine to get Zotero Integration to import a whole collection in one go: Bulk Import Zotero Library Annotations into Obsidian with Zotero Integration plugin - #7 by Feralflora
Several other bulk importing options are listed here, but the Zotlit method mentioned is still not working: Loading Endnote Ref Manager files - #5 by Feralflora