Sure they can. Fastmail has refused to support STARTTLS its entire existence and they're doing just fine. (except SMTP / email federation, as the only way to encrypt that is STARTTLS if the other end supports it)

XMPP may very well need STARTTLS for federation too, but not for client <> server.

Though the federated XMPP ecosystem is so small compared to SMTP I don't know why they don't just organize a cutover date and move on.