My understanding is that Firebug is discontinued from Mozilla's side (which means nothing wrt any volunteer effort ongoing there, btw!), but they assist in keeping it alive on Firefox updates because the native tools don't have the same functionality yet.

Our team also work on Firebug. So no, it's not "discontinued".

We are working on sharing more code. In an ideal world, we will be able to merge these 2 tools in the future.

But does "work on" mean "maintain so it doesn't break" or "actively improve"?

Jan Odvarko, the current maintainer of Firebug, is on our team. He's currently the only Mozilla employee dedicated to the Firebug project. He's joined by a healthy community (you can follow the project at https://github.com/firebug/firebug).

Jan and the Firebug team are actively improving Firebug - not just maintaining it so it doesn't break. The bulk of the Mozilla staff (and our volunteer community) is focused on the built-in tools, but a lot of it ultimately benefits the Firebug team.

The standby example is our debugger. A lot of the performance and stability problems Firebug has are a symptom of the old Spidermonkey debugging API (JSD). The developer tools and Spidermonkey team built a new debugging API[1] along with a remote debugging server. The Firebug team is currently working to update Firebug to the new debugging API/remote server.

Most of our work is dedicated to the built-in developer tools. But those also support Firebug development.

[1] https://wiki.mozilla.org/Debugger

Merging these two tools would be by number 1 request.