Did anything of the sort ever happened at all or are we only entertaining thought experiments?
This line of reasoning doesn't add anything of value because the same fear mongering applies to LibreWolf and any other project just the same.
I don’t know a lot about how Arch’s AUR works but this seems like something that could be made an AUR package for example with special configuration while still using “base” Firefox to put it together, rather than profiling it as a new product.
Or do extensions not have access to these settings?
For example, you can't change user settings from an extension. Or install other extensions.
It's means people have one less reason for sticking with firefox and means more people will stick with what comes with the OS / what google advertises everywhere / what works better with their favorite websites.
I have another profile that I use to is less locked down that use that might need cookies and javascript. One can use plugins like noscript and enable on per site basis.