Can a Minecraft server work without x-ray prohibition?

Don't see why you'd want to allow that, but suit yourself.

If you were to do this, I'd recommend making a dedicated resource world where ore spawn rates are significantly higher and constant per chunk if you're trying to have the x-ray provide little to no advantage.

I've never heard of a server that openly allows X-Ray to be used, but the servers I used to manage and a handful of others aren't too strict about it as there are countermeasures to prevent it from being used in the first place.