In these cases it's really helpful to recognize the distinction between the Mozilla Foundation (MoFo), the Mozilla Corporation (MoCo), and the broader, open source Mozilla project that binds everyone together.
The non-profit Mozilla Foundation exists to support the project, and does truly wonderful, pure work on keeping the Web open. Advocacy, education, grants, etc. They also own the for-profit Mozilla Corporation, which is in trenches directly competing with other browser vendors to ensure that the project has sufficient influence to fulfill its mission.
Persona was housed in MoCo, which afforded it greater resources at the cost of greater organizational risk.
> Either Mozilla is full of it when they say they fight for the free web, or they massively misunderstand how important it is to get rid of proprietary authentication.
The Mozilla project is too small to fight effectively on every front; we have to focus on areas of greatest urgency and where we have the greatest leverage. In the instance of Persona, two major things changed: (1) Persona became less urgent, and (2) we discovered that we couldn't credibly leverage Firefox to boost Persona adoption.
To the first point, back in 2012 we were seeing huge startups, including Spotify and Pinterest, run without offering any means of authentication besides Facebook Connect. The lack of traditional authentication on these sites looked like an ill omen for the freedom of the future Web, but that didn't come to pass. Both sites now offer email-based authentication in addition to Facebook Connect. It's not as slick as it would have been with Persona, but the immediate threat to user autonomy isn't there anymore. If I had to guess, it seems like the tide started turning in late 2012 / early 2013, around the time of Mailchimp's "Social Login Buttons Aren't Worth It" blog post at http://blog.mailchimp.com/social-login-buttons-arent-worth-i....
Secondly, Persona's passwordless design wasn't suitable for use in Firefox Accounts, the development of which had become quite urgent. So not only could we not use Firefox Sync / Accounts to boost Persona's active userbase, the Persona team suddenly found itself with domain knowledge that was quite valuable to the Accounts and Sync efforts. Oops. :)
That said, just because we're not fighting as visibly on this front doesn't mean we're out of the fight altogether. Firefox Accounts has an active userbase orders of magnitude larger than Persona's. We may be able to reintroduce a notion of federated identity into FxA at some point in the future, which would help us break out of the "three-way cold start" that Persona faced.
But that's all hypothetical. If anyone wants to run with these ideas, do it! For the sake of longevity, I'd recommend any spiritual successors to either establish themselves within independent foundations, or design the protocol without the sort of centralized bootstrapping that Persona had.