Could you provide some more details about how the symbology layer is made and saved and what you see wrong, perhaps with some screenshots? Are you working on vector features or rasters? Or you can share your data, so that we can have a look.
Thanks for providing more details and preparing a sample data.
Yes, you can just attach a zip file to the post.
Thanks for providing the sample data. I tried the following:
Added the \v10\0000subset_AVL.lyr to ArcMap.
Ran the Apply Symbology From Layer tool (Data Management toolbox - Layers and Table Views toolset in ArcGIS 10 SP3):
Input Layer is the subset_AVL
Symbology Layer is the \ABQ_sym\0000subset_ABQ_sym.lyr.
The subset_AVL layer was symbolized, showing the 7 unique values from SUBMARKET field; none of them were in the symbology layer. The symbol colors were unique and the labels were shown correctly. Please see attachment.
Did you not get what I get? What ArcGIS version are you using?