Main Form Dialog is a new feature in model-driven Power Apps. It was officially released this month (Feb 2020). Along with this, I also noticed today that Microsoft has also quietly added a new event that plays nice with MFD.

The new event is called OnLookupTagClick. This event handler can be used in scenarios where the user clicks on the lookup. Normally, this would redirect the page to the lookup record, but you can block this navigation on OnLookupTagClick, and rather show the lookup record on a modal popup using navigateTo. Below is the sample code on how to do this. Since I ran the code from DevTools console, I am using the deprecated Xrm.Page. If you are running this from a form, you should use the formContext.

Xrm.Page.getControl('parentcustomerid').addOnLookupTagClick(context => {
    context.getEventArgs().preventDefault();
	const tagValue = context.getEventArgs().getTagValue();

    Xrm.Navigation.navigateTo({
        pageType: "entityrecord",
        entityName: tagValue.entityType,
        formType: 2,
		entityId: tagValue.id
    }, {
        target: 2,
        position: 1,
        width: {
            value: 80,
            unit: "%"
        }
    });
})

Have a look at the GIF below to understand the UX of this approach.