So here is the NYS DOS reply to my inquiry. It's complicated and not that clear in the code book but once explained it makes sense. The fact that the School inspection manual was out of date didn't help. Basically Fire retardant curtains are required.
Have the code references in the NYS School Inspection Manual been updated for the 2020 Codes? It is probably referencing the equivalent of Section 807.3 in the current edition of the Fire Code of NYS.
This is what Section 807.4 of the 2015 Fire Code of NYS says:
807.4 Acceptance criteria and reports. Where required to exhibit improved fire performance, curtains, draperies, fabric hangings and other similar combustible decorative materials suspended from walls or ceilings shall be tested by an approved agency and meet the flame propagation performance criteria of Test Method 1 or Test Method 2, as appropriate, of NFPA 701 or exhibit a maximum rate of heat release of 100 kW when tested in accordance with NFPA 289, using the 20 kW ignition source. Reports of test results shall be prepared in accordance with the test method used and furnished to the fire code official upon request.
Anyway, Section 807.2 of the 2020 Fire Code of NYS (FCNYS) says “Groups A, B, E, I, M and R-1 and in dormitories in Group R-2, curtains, draperies, fabric hangings and other similar combustible decorative materials suspended from walls or ceilings shall comply with Section 807.3”. In other words, that is saying where ”curtains, draperies, fabric hangings and other similar combustible decorative materials suspended from walls or ceilings” are “required to exhibit improved fire performance”. So, Section 807.2 of the FCNYS says “where” those things must comply with Section 807.3 of the FCNYS.
Exception #4 in Section 807.2 of the FCNYS doesn’t negate the requirement to comply with that section. It simply says that Section 807.2’s limit of 10% of wall area for attaching “combustible decorative materials” doesn’t apply to “apply to curtains, draperies, fabric hangings and similar combustible decorative materials used as window coverings”. So, entire walls can be covered by curtains that comply with Section 807.3 of the FCNYS. Your impression over the last 7 years about how the code requires curtains to be of a fire retardant cloth is still correct.