First of all, it is technically possible. the VXLAN traffic will work with out 1600 on the physical switches. however, VMware is strongly recommending to configure 1600 MTU.the reason is we don't know which VM or application will send the 1500 MTU size packets or nonfragmented packets if the application is generating 1500 MTU packets, then the VXLAN header will be added to that packet if you have not configured 1600 MTU on physical switches then those packets will be dropped.
Note: TCP packet MTU will start from 1 and it will go up to 1500 MTU by default. if these packets are dropped anywhere in the physical switches then the OS will again be sending the packet from 1 MTU size