The question is not about "XUL functionality" specifically, XUL is just an implementation detail, and html could work in its place just as well.
The question is how much the extensions can do, in the old model they could do anything firefox code could do, in WebExtensions model, they can do only very limited set of things.
On one hand it is quite sad to see firefox extensions go, on the other hand the old model was a maintenance hell both for firefox developers and for addon developers, because smallest changes in firefox ui were breaking bunch of addons, and even changes in addons themselves were breaking other addons, which all had incompatibilities and had to do lots of subtle hacks to work together.
I have worked on firefox addons for several years, and had to quit firefox when they started ignoring addons and investing in old addon sdk. But saying Mozilla is intentionally killing firefox is not fair the whole thing was shaky and full of hacks and would crumble by itself too.
What they should do now, is splitting their ui from the engine, so that advanced users can hack on the ui and get all the benefits of old addon system without the mess. If they fail to do that brave browser with https://github.com/brave/muon will take that niche.