bscphil did a good job of it. They stretch the password into a key, but a 24-bits-of-entropy key still has only 24 bits of entropy, no matter how much you stretch it.
Their previous system actually used properly-secure encryption keys.
> I'm unsure why you think Mozilla would do this, or why you would be using Firefox at all if you expect them to push malware to your system.
There's a difference between trusting them to provide a bit-for-bit identical binary to everyone, and trusting them to never send malicious JavaScript to one person. Downloads are public & could at least in theory be verified by the community at large, while a single JavaScript download could be subverted once and the world would never notice.
As for the why — I explained why afterwards. Not just Mozilla has the ability to steal your passwords: any government which can force it to comply can also snarf your passwords. As for precedent, court orders require third parties to do things all the time.
The only way to build a secure system is to build a system one couldn't subvert even if one wanted to, or were forced to. Mozilla completely, totally and utterly failed at that.