shunt the diode, do not put the modulator in series. 317 is a poor choice for a current source for a LD. It can suffer from oscillation and horrible overshoot. Put your N fet across the LD to ground, the current source never sees a major change this way. Yes, you will need to invert the drive, but using P channel has some down sides. Make sure you get a "logic level" fet, as some need major gate drive voltages. This is one case where a TiP41 or similar NPN darlington shines.
317 is used by people to build cheap drivers and pushed by people who should know better, trying to make a quick buck.
Its fine for big leds, that have a huge die and are spike tolerent.
And yes, with some care, a 317K can be set up for a limited range of analog modulation, but in this users experience, I will build the or buy the opamp current source every time.
Steve
Qui habet Christos, habet Vitam!
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When I still could have...