When using the mod on the server, if the client doesn't have the mod they can't see their grave.

Otherwise, the mod works! The grave is there, it's just invisible. I've tested it a few ways. If I know where the grave is, I can jump on top of it, crouch, and get my stuff back.

Can an option be added to create a vanilla friendly gravestone? Maybe something with armor stands and the players head?

I could look into this. However for now I would recommend using VanillaDeathChest:
https://www.curseforge.com/minecraft/mc-mods/vanilladeathchest-fabric