What is Issue?
You will face this issue because the party list shows the results for all the entities like Accounts, contacts, lead,User and depending on the entity selected in “Look for” in Lookup More result window.
The Solution for this issue is to set the “Look For” value before filtering the lookup to limit the search according to business requirement. Use the following code to set the “Look For” in Lookup More Window-
This will set Look For as well as will apply the custom filter to your field.
Enjoy MS CRM!!!