IRC has no standardised way for handling contact lists (some servers have a bot based implementation), no proper offline messaging support (some servers have MemoServ), no easy way to find which of your contacts are online (WHOIS them all and see which are there, I guess?), and no proper permanent identification for users (they can register with NickServ, but on some servers this still allows users to log in with the same nick when the first user is offline, it just means the original owner can kick the other person when they log in).
It's very good for its intended purpose, but it's not good for IM usage.
If you can't name a single protocol that is better at what XMPP does, don't you think "(lets face it) terrible" is a bit of an overstatement? It seems more like a "democracy is the worst system, except for everything else we've tried" scenario.
I mean I can't name something that does what XMPP does is because, well, XMPP does .. like .. everything (or at least tries to). As far as a lightweight protocol is concerned, IRC is much better.
I said IRC semi in jest before because it's very old and there really should be something lightweight that ought to take IRC's place in this web 2.0 world of ours.
I ended up making my own -- I based it on IRC but wrapped it in JSON. It's stupid simple because chat should be easy.