Long story short - I got it working!
Not without some messing around though.
I had all the server settings configured as per the recommendation in
this thread but it was still giving the "cant connect because of settings" error to my mate on ps5.
So I reset my server (im using frag.gs), started over from scratch, didn't touch any settings except server name / password and map name.
Then I loaded the map into the server folder: .local/share/7DaysToDie/Saves
Then I loaded my entire localprefabs folder (containing my custom prefabs) into server folder: 7d2d/Data/Prefabs
Started server, ps5 mate connected, loaded into game, and it worked!
YAY
I don't know if there was a setting i changed/missed in the config, or if I put the prefabs in the wrong place the first time (I don't actually remember) but starting over solved it. I have a feeling I may have renamed my localprefabs folder to something else first time, but if so then I would have expected a different error.
Anyway - anyone reading this later: YES - custom maps with custom prefabs DO work on console.