What if the user did intend for two different artists to be added, how do you propose that should be handled?

What is the chance of a same release featuring two different bands, the only difference between their names being the capitalization?

My vote is for this to be case insensitive as suggested by Nicolás; although not sure if there are wider internationalization concerns here. In the very small number of cases where it's intentional (perhaps some weird artist intent where the different capitalization is intentional) I think requiring a post-addition edit would be acceptable.

I encountered this exact issue and have pested against release editor.
I ended creating the new artist outside release editor, then reloading the Add Missing Entities tab.

Agreed, this is so edge-case that case insensitive is the way to go

We should move forward on this I think; it's really annoying. (see MBS-3422)

Yes, lets go with case insensitive.