Removing the option (with justification "not many people use it because we don't make the option prominent") does seem especially strange when they plan to increase the size of the default style, i.e. increasing the relative benefit in it what it does (save space) vs the standard. If it's possible some people didn't think the difference was enough to matter before (now), the difference will be even more noticeable. And it's not like there is any technical problem for why it can't exist, they just are being overly anal-retentive control freaks.
Incidentally, I find a signficant benefit of it to be not just saving vertical screen space which seems the design focus, but saving horizontal space as well... Which for the Bookmark Bar (which the setting also applies to, not just Toolbar Widgets), translates to more Bookmarks/Folders on-screen without forcing overflow into menu.
The fact Compact Mode is smaller just doesn't really negatively impact usability, 99.999% of the time the extra spacing does nothing for you, and likewise you don't generally need to look at that stuff to use a web page, and when you do you typically use "muscle memory" to know where stuff generally is so the tighter spacing isn't really key for legibility.
Anyways, I don't like this design decision if they choose to go thru with it in the end (seemingly it will get alot more attention now, so who knows), but really love everything else about the browser, it works great and I love the privacy options like built in anti-fingerprinting which is really the only way to go since otherwise you make yourself more unique by trying to be less unique to the trackers.