If it were a more compact format, it is likely both the uncompressed AND compressed sizes would be smaller.
By your logic, if you 10x'd the length of the XML tags in XMPP then it would be even better since you you would get an even further improved compression ratio.
To be clear, I don't have a problem with XML in XMPP since it is negligible overhead, but "it compresses well because it is full of redundancy" is not the argument that should be used to justify it.
That's a strawman. I am not arguing that we make the tag names longer, I am arguing that there is little benefit to a more concise format.
If you are so bandwidth constrained that deflated XML won't do, then I doubt deflated JSON would be good enough either (and that exists anyway, Matrix).