Update:
if you go into UnrealEngine\Engine\Config\Android\DataDrivenPlatformInfo.ini
and set bSupportDistanceFields to true for es3.1 vulkan, the editor will compile the material in material graph without complaint as well as show up properly in vulkan preview. Doing a compile for quest 3 right now to see what happens.
I was unable to override this property at the project level, I need to see if this config file is something the engine does hierarchical overrides for.