Since Allen was there and I was not he is in a far better position to know. But my impression was that the Smalltalk group had been reasonably happy with their 8086 based NoteTaker computer and expected their partners (HP, Tektronix, Apple and DEC) to use commercial processors instead of designing custom ones. Even if they were far slower than the Xerox Dorado.
About Squeak in a web browser, it was a completely different project than the current SqueakJS. Alan was frustrated that the IT people at schools wouldn't allow Squeak to be installed on their machines. So the native code VM was bundled into a plugin for the then popular web browsers and it became as easy to use Squeak as Flash. Except that the IT people allowed Flash but not Squeak so it ended up not helping. But in terms of performance it was better than Flash, Java (not Hotspot) or Javascript.