The action module works correct.
But it cannot help to solve the task, I think so.
There are other ways to go in Mp3tag, here is one proposal ...
(... for two digit leading track number)
Action: Format value
Field: _FILENAME
Formatstring: $left(%_filename%,3)$caps3($cutLeft(%_filename%,3))
Here is another proposal, which handles a various number of leading digits ...
Action: Format value
Field: _FILENAME
Formatstring: $regexp(%_filename%,'^(\d+\s+)(.)(.+)$','$1\u$2\L$3')
From:
01 Smoke On The Water
To:
01 Smoke on the water