I think the main problem is that XUL is like HTML, but not. So people's brains are already wired to understand html, but when there's something that looks identical to it, but has it's own set of quirks, it takes a lot of time getting used to. It's as if someone took C++ and changed just enough stuff so that you wouldn't notice it until you tried to run it.
How many html tags do you recognize here: https://developer.mozilla.org/en/XUL_Reference ?
Lots of the tags are somewhat historical because css wasn't as powerful back in 2002 as it is today. Most people starting to hack XUL won't know the difference between a bbox and a deck tag.
It looks quirky, but I thought the most important part of using web technologies is to use Javascript and CSS; which can be applied over XUL elements just like HTML.
Also compared to the current project it is vastly superior in terms of features and functionality that can be tapped into with Javascript.
There is space for improvement, like with most software, but it is in fact a tested technology already.
Some of us at Mozilla Labs have tried to fill this gap through the Chromeless project (https://github.com/mozilla/chromeless), but we've stopped working on it in favor of a more general runtime for web apps (that's what I was talking about in the last sentence: https://wiki.mozilla.org/Apps/WebRT).
The very fact that XULRunner/Chromeless didn't take off like PhoneGap did in the mobile arena for example is evidence that there's room for innovation in this space.
Happy to elaborate on this, but only if you promise you'll be nicer :)
But what I don´t understand is what more are you trying to achieve that cannot be done in XUL with a browser tag (https://developer.mozilla.org/en/XUL/browser), and where you can stick to vanilla html/js/css, if XUL is not an option?
I already mentioned XULRunner here, and I´d suggest you have a look at it. There are a few applications you may have heard about using it https://developer.mozilla.org/en/XULRunner_Hall_of_Fame