For those that use Resharper with this issue, I discovered the fix (no need to disable Resharper):
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Go to Visual Studio top menu -> Resharper -> Options
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Find the Tools section, expand “Unit Testing”
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Click on “MsTest”. The checkbox should be on enabled, but the Test Settings file path below that may be blank. If it is, click on browse and select the runsettings file you want to use.
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Click save, rebuild and try to run the tests, the parameters should now work.
Not sure why but simply selecting the Test Settings file from the Tests menu -> Test Settings does not actually work when using Resharper, so this file needs to be explicitly pointed to directly in the Resharper options.