As far as I know trading CFDs is illegal in the U.S. how come so many Prop firms that are even located in the U.S. allow trading CFDs for their evaluation and Funded accounts?

Don't know but I can take an educated guess.
They accept traders from countries where it is legal, I presume.
So why not offer CFDs to those traders?

Or maybe they're not actually in the US despite appearing to be?
Or maybe CFDs are only available during the evaluation in the States?

I'd find a few prop firms that offer CFDs and ask them directly.
If they don't respond or act shady, I'd run for the hills.
Good luck, hope you figure it out.

Maybe for foreign clients?