When I turn this option on, monsters still spawn naturally in the block, only spawn eggs and summon commands fail to spawn

Weird, that's the opposite of how it should work.

Indeed, I feel the same way.

So what MC, mod loader and mod version are you using?

The version I use is as follows
Minecraft version 1.20.1
Forge version 47.2.20
Mod version 0.23.0

Thanks!