FUSE isn't generally lighter weight than a filesystem but it can be relatively competitive for simple use cases like a read-only filesystem. Additionally, squashfs lets you pack metadata and data very tightly, and since it is a readonly filesystem, has some optimizations normal filesystems can't (how data is placed, overhead of managing metadata operations, etc). Also squashfs lets you choose how the files are laid out and compressed so that all files of a certain type, such as all .pyc files, are close together, which increases compression ratio and reduces overhead for subsequent file accesses (i.e., can reduce random disk or flash IO).

In practice the timings of XAR vs filesystem are close enough to be "in the noise" -- it's when compared to PEX or PARs that the difference is quite large.