The custom sky textures don't work on Pre-3 Vanilla servers (servers, not singleplayer!).
The class 'ClientLevel' gets the effect through:
this.effects = DimensionSpecialEffects.forType(dwm.registryAccess().dimensionTypes().getResourceKey(cha));which used the dimension data sent in Login and Respawn packets to get the dimension key resource location, but this doesn't properly resolve since 'DimensionType' does not implement hashCode or equals (this works on singleplayer due to them just being the same instance).
Possible solution: Either send the resource location in Login and Respawn or implement hashCode/equals in DimensionType (the first of which would be preferred for certain modmakers tho)
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@Galaxy_2Alex yes, I am (especially the end screenshot + having stars in the nether should eliminate all doubts about that)
Confirmed on dedicated server for me a well. I created a new world where it did not have this bug, it seems to come at some point.
Are you sure this isn't just caused by you having the render distance set to something higher than the server's render distance?