It's sad to see them squander an opportunity to do good work. Mozilla should have gone all-in on ethics/privacy in contrast to tech giants and made an offering like Proton. Or gone with the Wikipedia donate model like another commenter said. Any compromise on their values is insane mismanagement, that was their whole brand.
For making goggle the default search engine.
So they aren't really "in contrast to tech giants" in any way.
If not LibreWolf then what? The rest seem out of date or worse than Firefox in some way.
To your point, cloning Proton is such an obvious path forward to generate revenue while staying true to their values. Even selling a Firefox Pro with an annual fee offering some developer-specific or power-user features would be great.
Together with certain other services, like Password manager and Firefox Accounts, they could indeed go with your suggestion. However, I really do not want my EU data under a US business or non-profit. I want my data under EU laws, or European at least (Norway, Switzerland are also OK).
IMO, Mozilla should team up with Kagi. They have the numbers of users, and Kagi has the excellent product.