Does it matter if LOD is generated from an esm instead an esp, or is either way preferable?

Nope. All that matters is that the worldspace name is correct as that's what it names/uses all of the LOD files with.

I could make an esp with a worldspace called "TestLod", then if you had a mod that was an ESM and your worldspace was called "TestLod" you could use my LOD. Of course if the worlds were different it wouldn't match up, etc etc. But the point is all the game cares about are the file names.