In the end, I took the 7 hour delayed flight but wanted to get out on a flight sooner, to make an onward connection (which ended up being missed). It was a 2 hour intra-EU flight so not as significant as the long-haul tier of the regulations. But it still made me miss my next flight (which was long haul).
EC 261 compensation is based on delay to your final destination. Assuming you are on one ticket, LH should be covering all your extra costs until the end of your long haul.