I've been testing out the chemical thrower with several of the flammable fluids and it does not light blocks on fire, and I can find zero information online about if it even is supposed to. I would assume that it would create fire but it doesn't. Is there something I'm missing in configs or something or does it just not set blocks on fire?

That's on purpose. Large fires are real bad for server performance, and I'd rather people not accidentally burn their house down.