FCEs are a favorite way for a workers' comp claimant to be accused of "symptom magnification" and/or giving "sub-maximal efforts." Then, the doctor might decide you're a liar and release you to regular duty, so that the insurance company can cut off your indemnity and medical benefits.
Before you go (which you do have to do on an accepted case), I would talk to a local attorney (i.e., not one of the guys who answer Avvo questions all the time from other states to get their scores up) to...
Your attorney should request a conference call with the judge (if there's no judge assigned, he/she should file a hearing request to get one assigned) to get the procedure approved asap. Chances are good that the insurance company is trying to arrange a defense medical exam with a doctor who'll say you don't need the surgery. But again, ask your attorney what's going on and to file a hearing request and/or schedule the conference call.
Sounds like you need more medical care (to include surgery, perhaps). I wouldn't settle right now. The fact that the adjuster is pushing you to settle now is further indication that you likely shouldn't.