I'm looking into this and my current hypothesis is that there's no alternative LZ4 compression handling logic. Instead, I believe that it is regular LZ4 compression altered after the fact by some kind of encryption or obfuscation. Perhaps something like the XOR that you mentioned the game used to use.
The obfuscation seems to alter some of the bytes, leaving most of the bytes in the clear.
When this obfuscation alters bytes that are compression "literals" or "offsets", a regular decompression routine will output wrong values but continues to decompress without noticing a problem.
When this obfuscation alters compression "tokens" or "lengths", a regular decompressor will likely get lost, hit invalid sequences, and maybe give up.
So far, I haven't seen any obvious pattern for which bytes get altered nor how they change. Sometimes there are 10 clear bytes in a row, then an altered one. Sometimes the clear run is as few as 4 bytes. I haven't yet spotted a definite case of two altered bytes in a row.
I've been focusing on the asset file you mentioned because it's got plenty of ASCII strings that I can spot holes and guess what was there originally.
Here's a list of some offsets in that compressed asset file, my guess as to the clear byte that was there before encryption, and the byte that I really found there. (Numbers are in decimal and CSV format so you can import them into a spreadsheet or script for analysis.)
Notice that the byte value 108 seems to be represented in the encrypted stream as at least four different values: 251, 218, 206, 211.
On the other hand, I have yet to find any of the encrypted values reused.
Also notice that the byte value 101 encodes to 0 at offset 900, while 7 bytes later the same input value encodes to 115. What's the relationship between these numbers? I don't know.
As for detecting an LZ4 file with these modifications, I suppose an algorithm could look for "unreasonable" offset values (seeking further back than the decompressed bytes go). Theoretically, it could even try to get back on track by trying out some nearby possibilities.