Thank you for your feedback. I agree that the first-run experience makes for quite the adventure. Until a few months ago, I also considered the idea of starting the add-on in a paused state a no-brainer. After supporting my add-on for some time, however,I'm not so sure about that any more.
There's a huge portion of users (probably not HN readers) that would not realize that the add-on is paused. Pop-ups, etc. only go so far. It's really about managing expectations and expectation mismatches. I hope that the portion of users who care about their pre-existing cookies overlaps with the portion of users who read the "What just happened to my cookies" blurb that pops up. I haven't had too many angry complaints since I added the undelete feature, so it might be working.