ATM XMPP federation is still up and running. If enough people approach the Messaging folks at Google with coherent, well-reasoned reasons for leaving it up (and perhaps securing it with TLS!), then it might get left up for good.
For outbound traffic some odd stuff is going on. Presence from all Hangouts endpoints still propagates to GTalk and thus federates. Messages can also be sent. But again, that's one way and replies are not delivered to Hangouts. Additionally, XMPP iq-type requests to Hangouts endpoints are not responded to, violating the core XMPP spec.