Forgetting about "DefaultFileExtension" for a moment, you should always be able to force your own extension by unchecking the "If no extension is proved, use …" option box in the Save dialogue.
Now if you are trying to override "DefaultFileExtension" one thing to be aware of is that the version download from my site and the version downloaded from the Mac App Store have different identifiers. So you might have to adjust the line above to include the right identifier:
com.foldingtext.FoldingText (to effect Mac App Store version)
com.foldingtext.paddle.FoldingText (to effect download from my site version)
Another thing to be aware of (I just ran into problem myself) is that previously I released the "com.foldingtext.paddle.FoldingText" version as a sandboxed app. But now it's released as a non sandboxed app… and that means the preferences are located in a different place.
Unfortunately it seems that as long as the sandboxed version of the preferences file exists, then the
defaults write com.foldingtext.paddle.FoldingText command targets that version instead of the nonsandboxed version of the preferences. All very confusing…
But end result is I think it will work if you first delete
~/Library/Containers/com.foldingtext.FoldingText. Then try that terminal command again.