Issue: org.xtext.builder tries to read pom.xml on dirtyClasspathEntry as Jar

Question: Are dependency poms valid as Gradle dependencies?

Depends on what you mean by “dependency pom”.
If you mean having a pom as dependency, sure, just does most probably not make any sense.
If you mean a BOM that defines versions for other artifacts, then you need to use platform(...).

Calling generateXtext failes with:

Sounds like a bug in that plugin to me.
While it is not too common to have non-archive files there, it is perfectly valid and the plugin should cope with it imho, so I’d suggest you open a bug with that project.
As a work-around, just remove it if it is not necessary anyway.

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