During modeling exercise, I had a VDB with an XML document and the VDB would not deploy to the server correctly. Ramesh indicated the Teiid version I was using may have a problem with warnings in the VDB. As there was, in fact, a warning, I changed the validation to change the warning to Info. After rebuilding the project, it looked fine. Deploying the VDB failed again. Checking the VDB's contents, there was still a warning.
It appears the VDB validation is ignoring the preferences settings.
Model project set attached.