You can have one or the other active at a time, but not both simultaneously. If you have the DNS profile turned on and then proceed to turn on Little Snitch/Lulu, the DNS profile will get turned off by macOS and whatever other DNS configuration you have will take precedence. It's mentioned in passing by Mullvad in the docs [0]:
> If you have more than one profile added then macOS seems to use only the last one that you installed. If you remove a profile then it appears that it will not use any of the other profiles.
This isn't unique to Little Snitch/Lulu and Mullvad though, you would run into the same problem with any application that creates a network filter by using a profile, see [1] for example. Since the full blown Mullvad VPN app does not use system profiles, it does work in tandem with Little Snitch/Lulu.
As a tangential aside: this limitation on Network Extensions is infuriating. I can understand why it exists, but one of the results is that if you’re using an Endpoint Security extension, it can’t also act as a filter.
I’ve never been able to get CrowdStrike Falcon and Little Snitch to work on the same machine because of this. It would be nice if you could have n filters (and a limit on n isn’t unreasonable).
Little Snitch / Lulu die?
Do you have like a ticket for more explanation?