There are efforts within NASA to kill NOSA. The lawyers are the ones who insist on it.

I wonder how the NASA copyright works given this general legal rule that US federal government works are automatically in the public domain.

I know that rule has various exceptions, but I’m left wondering exactly which of those exceptions applies in this case.

Indeed. My subjective perception is that NASA don't use that as much as they used to. But at least it is OSD compliant[1], and not some weird, janky "sort of Open Source but not really" license.

[1]: https://opensource.org/license/nasa1-3-php

NOSA is an absolute pain to deal with. In particular requirement that all changes be your "original creation" has scuttled a number of efforts to integrate projects into the wider ecosystem.