So it says in the FOP compliance document. Just to clarify, when they say "blocks" they do mean the XSL definition of a block as an area, and not the <fo:block> element?

It means fo:block, fo:block-container (except for positioning bugs)
and fo:table-cell (with even more caveats). I don't think it would
ever work on fo:table, fo:table-row, fo:list-block and the other list
FOs. Note that padding isn't an inheritable property.
THere are additional problems in footnotes and table cells, where
using padding is likely to mess up link hotspots.

FOP compliance table says that implementation of space-after is only partial - only space-after.optimum supported. Hm.

Anyway, using space-after doesn't solve the problem of later list items "moving up".

That's strange, I always thought space-before/after is applied even on
empty blocks.