It looks like MUC room creation by setting room configuration on non-exisiting room jid fails to created MUC room on the Prosody XMPP servers.
The solution is to create a room by joining (if setting a room config fails) and the setting room config. This solves the issue for Prosody.
It looks like MUC room creation by setting room configuration on non-exisiting room jid fails to created MUC room on the Prosody XMPP servers.