I know this must've been a hard decision to make at Mozilla but I feel it's not the right one.
You do a great job of outlining the pros and cons. That said, I do have to disagree that this isn't the right move. I would argue that it is in fact the right move; it's just that the right move is the most painful move.
Firefox is a wonderful browser. But I fear we're losing sight of just how limited its legacy core is. Legacy Firefox offers no threading, no privilege separation, and no meaningful isolation between tabs or windows.
The browser-as-an-OS concept is no longer a gag, but the actual reality of how browsers work. Browsers are expected to do everything from executing code (JS) to graphics (WebGL) to video (HTML5, etc). Furthermore they are being treated as a multitasking operating system - via multiple tabs - with those tabs all competing for resources. Worse, some of those tabs may be hostile to the system or to other tabs.
This is something Legacy Firefox is ill prepared for, and in doing so it's the odd man out among the major browsers. Legacy Firefox is the MacOS Classic of browsers; a time-tested piece of software with parts going back to the earliest days of the Web. But like OSes 15 to 20 years ago, the world has moved on; it's akin to MacOS Classic going up against MacOS X/WinXP/Linux. The lack of real, preemptive multitasking and security has become a major liability, and becomes downright embarrassing when you realize that Microsoft of all companies was doing things like putting their browser in a low-privilege context a decade ago. Similarly embarrassing is the fact that a single runaway tab can take out the whole browser!
But all is not lost. Firefox can and is being upgraded with electrolysis (e10k). e10k Firefox has taken far too long to be developed - Mozilla should have been working in earnest on this a decade ago - but at long last it's here. And it finally brings with it all of the threading and isolation features that will make the browser safer and more reliable. Or more to the point, it will make the browser competitive in these respects with Edge/Safari/Chrome.
However just like giving up MacOS Classic meant giving up the OS's legacy applications, there is a price to pay for giving up Legacy Firefox: XUL and legacy add-ons. XUL is incredibly powerful, but the Moz devs have laid out a very good case for why it (and the rest of the legacy add-on system) can't be used with e10k Firefox. There's no concept of threading or safety; it's an API that has an unsafe level of access to the browser and can't handle being split up among threads. Its power is why we power users love it so much, but that power is dangerous. Worse, maintaining that power ultimately gets in the way of operating the browser with a safer multi-threaded environment.
And I won't dance around the issue: losing XUL and the legacy add-on system is going to be painful. Just losing the Classic Theme Restorer alone is going to be complete and total hell for this crowd. Never mind the other add-ons that enhance privacy, block ads, and do so many other nifty things. And not all of those add-ons can be remade for e10k Firefox, since they rely on a level of power that will no longer exist.
But you know what? It has to happen. Just like with MacOS Classic, at some point we have to stop using an archaic, unsafe environment origially designed around unitasking in order to move on to something better that can actually fulfill our needs. Even if we were to explicitly design/limit Firefox to Slashdot-level power users - and I would argue that doing so would ultimately be the end of the browser - it's still not in our interest to be using a browser that, at the end of the day, relies on cooperative multitasking. It's a crappy (if not horrific) execution paradigm for the real world. And while I admire the Pale Moon devs for what they're doing, Pale Moon just prolongs the problem. We still have to face this demon some day, if not today.
Is it going to suck giving up Legacy Firefox? Hell yes. But what other option is there? To continue using a browser core that can't handle a single rogue tab? No. We're going to have to grin and bear it, and then after the transition to e10k we as a community are going to do what we do best: make it better. And we'll do so by developing new add-ons for e10k, leveraging the strength of open source software development, and ultimately pushing Mozilla to better serve our needs. Without this change Firefox has no future, and even with e10k it may still have no future. But with e10k at least there's a chance.
Which is not to say that the Mozilla devs are saints. Far from it in fact. We wouldn't need Classic Theme Restorer if they didn't screw with the UI in the first place. But despite their painful inability to see why cloning Chrome is the wrong way to go, they're not wrong in this case. We need e10k, and to have e10k XUL has got to go. After that's done, then we can get back to beating some sense into the UI team...