Setpref is not working or is it a bug or something?

[Robert J. Hansen]

> Why this happening and what is the solution to it?

The preferences list in gpg.conf are your preferences for what you use 
for the mail you compose to others; the preferences list on your key are 
your preferences for what you'd like other people to use for the mail 
they compose to you.

They represent two different things, which you seem to have conflated 
together.  I think this will resolve a good half of your questions.

The other half can be resolved by asking this question: "When I changed 
my key preferences, then deleted the key, and restored it from a backup 
I made before I changed my key preferences, how could the backup know 
about the changes I made *after* I made the backup?"

:)