It's strange that they ___ be late.

The sentence expresses surprise or disbelief about a situation. The modal verb 'should' is used to express expectation or what is considered normal or right. Therefore, 'should' fits the context best, implying that it is strange because they are not expected to be late. The other options, 'could', 'must', and 'would', do not convey the same sense of expectation or strangeness in this context.

The correct answer is: should