There are many karaoke software programs (shareware) available on the internet which allow you to easily 'embed' lyrics into both midi and kar files. The important word is the ability to 'embed' the lyrics into a midi file. This also includes the ability to edit lyrics as well.
Checkout "Karaoke System": http://www.team2000-al.com/mdrsoftware/karaoke/karaoke_en.htm
I have never used this software program myself (I'm one of the anti Karaoke guys here, remember?
) , but this is the software used by German Midi Magazine "Midi Hits" and Italian Midi Magazine "Midi Songs" to insert lyrics into their commercial professional midi files. - Scott
The following is yet another karaoke program which supports embedding lyrics into midi files. I found it via the Google search engine:
"Gassman Karaoke Editor": http://gasman.future.easyspace.com/Information.htm