[roca]

The problem is that XUL was a) nonstandard and b) pretty badly designed and implemented. (For example: XUL trees relied on Javascript callbacks being called at paint time in horribly unsafe ways; XUL flexbox never integrated well with CSS block layout.) It was mostly hacked together in a hurry to get Netscape 6 out the door (and we know how that went). It was XML-centric and the Web ended up going in a different direction. All in all, it was clear pretty early on that XUL was going to be a dead end. Most of the good parts of XUL were standardized as CSS features (or in a few cases, HTML features).

Given more resources, Mozilla absolutely could have done a better job of transitioning faster from XUL to standards-friendly equivalents, and popularizing the latter in an Electron-like framework. But there was never a time when Mozilla had excess resources floating around, and other things took priority. (Also see my comment above about how architectural churn made it unattractive to support a stable embedding API.) As was pointed out in other comments, the benefits of regular Web market share tend to outweigh the benefits of embedding popularity.