LivingEntityFeatureRenderEvents.ALLOW_CAPE_RENDER does not prevent capes from rendering when a registered listener returns false. This can be observed in the test mod for fabric-entity-events-v1, where equipping the "Diamond Elytra" test item in the chest slot should hide the cape but does not.

In the following image, the "Diamond Elytra" item from the fabric-entity-events-v1 test mod is equipped in the player's chest slot and the player's cape is still visible.

Observed in Fabric API version 0.131.0+1.21.8.

Here's another screenshot where the player is flying using the Diamond Elytra while their cape is still shown, which demonstrates that the item is working otherwise.

Looks like this bug was introduced while porting from 24w33a to 24w36a. It looks like line 36 should return true, rather than false, as the enclosing condition is negated