Hi,

if the links in the sitemap are not SEF-friendly it means that the Joomla router can't resolve them to a menu item.
If they are not SEF-friendly in the sitemap they are not SEF-friendly even in the website.

The options:
Sitemaps links rewriting
Force format for SEF links

are not related to this, they are related to the sitemap link not to the link included in the sitemap generated by Joomla.

You must ensure that the contents are properly assigned to Joomla menu items, for example that the '8-blog' category is assigned to a view 'blog category' in your Joomla menus.