Is Palindrome subset of a regular language regular?
The subset of all palindromes in L is obviously not usually regular, take the simple example $a^*ba^*$ where the subset of palindromes $a^nba^n$ is not regular. But that is not the question. The question is about the set of all left halves of palindromes in L. 

Assume you have an FSM for L (that is an FSM describing and defining L). You can take that FSM and use a simple algorithm to determine if w is in M:

Given a state S, define succ(S, a) as the state that the FSM will transition to from state S with input a, or nil if there is no transition for a. For a set of states T, define pred(T, a) as the set of states S such that succ(S, a) is not nil and an element of T. 

To determine if w is in L, you would start with S = $S_0$. Then for every symbol s in w, you replace S with succ(S, s), exiting the loop if S is nil. Finally, w is in L if and only if S ≠ nil and S is an accepting state. 

To determine if w is in M, you start with S = $S_0$ and T = set of accepting states. Then for every symbol s in w, you replace S with succ(S, s) and T with pred(T, s), exiting the loop if S is nil or T is empty. Finally, w is in M if and only if S ≠ nil and S is an element of T. 

Instead of using this algorithm, you can quite easily construct an FSM for M.