Yes, this is the whole point of (this part of) EDNS. It allows you to direct the traffic to a server close to the end user (geographically or based on peering preferences).
> This is clearly broken on their end.
There are two broken things here:
1. Cloudflare doesn't send the source IP with the DNS request
2. Archive.is would rather not respond to broken requests at all than make a best-effort with a degraded experience
Considering that Cloudflare is pretty much the only public DNS server with this problem, and the only motivation seems to be that it competes with their CDN product, I'm far more sympathetic to Archive.is than to Cloudflare.
> Cloudflare literally can't fix this. archive.is is 100% responsible.
Only Cloudflare can fix this properly. Archive.is can work around it (at the cost of degraded performance), but I can understand why they would want to stand their ground.