Yes, they prefer you send deDRMed, or no DRM and books not from Amazon. Which is why it doesn't accept Kindle formats, but everyone else's format.
So for epubs they don't care. Except they might prefer you to use the service rather than USB transfer.
[Tongue firmly in cheek!]
It might be stupid to remove DRM from a KU title (even if bought at full price without a sub or borrow), convert to ePub and use STK. Amazon might assume the author published the book elsewhere. Amazon has even blocked authors from KU (which is exclusive, even the author can give free copies!) when the Amazon bot has found those titles on pirate sites, as if the author would be so stupid!
So they are bit crazy. STK content is supposed to be private to you or else Amazon is breaking copyright if it's copyright material (also in EU, GDPR), so they'd be in bigger trouble than you if they started making an issue about STK content.