It's not a general Android issue. The Mantano, UBReader, Pocketbook reading apps (to name but 3) work fine with SVG covers coded in the 'standard calibre' way, so it seems to be Kobo-specific.
If I'm not mistaken, for many of its options Modify Epub just calls existing main calibre methods to do its work, so I wouldn't think it likely main calibre would be changed to accommodate the Android Kobo app. My eink Kobos also appear to cope well with 100% SVG settings, at least in standard epubs, don't know about kepubs.
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