I think "works iff" is slightly inaccurate here, and "different sets of extensions" thing is overblown (not by you personally, but in general discussions like these). The big problem is actually the opposite: that XMPP continues to work when both parties support different levels of the protocol.

Many modern XMPP clients are comparable in features to Matrix clients, but many people still reach for e.g. Pidgin and Adium, despite those not seeing active XMPP development for many years (that is hopefully changing, at least for Pidgin). Despite the evolution of the protocol, these clients are perfectly able to function, just without the modern stuff people expect.

Discovering the right XMPP software (and that it exists) is the hard part for users, and that's part of what we're trying to solve with the Snikket project.

All decentralized protocols face the difficulty of evolution over time. Email has outlived many attempts to evolve it (but maybe there is still hope with initiatives like JMAP). I'd say XMPP is doing a decent job, and is still evolving. Matrix has yet to really face this issue as it's still relatively young.

IRC... I think the majority of its remaining users consider its lack of evolution a feature :)