> OMEMO is not a server feature, it's a client feature

Are you sure?

https://xmpp.org/extensions/xep-0384.html#server-side

Additionally, as per your link, it says "Supported, XEP-0222" for OMEMO encryption, not that "Applicable to clients only, so will work with Prosody", like it does for some others.

What gives?

For OMEMO to function smoothly it wants permanent storage for Publish/Subscribe functionality (XEP-0222) on the server. The feature predates OMEMO and was designed for various other purposes, such as storing a contact roster or profile picture on your account. OMEMO works without XEP-0222, but then the clients are forced to "meet for the first time" every time they connect and want to exchange encrypted messages. OMEMO in itself happens entirely on the clients.