why it was restricted in the first place?
Because there were enough incompatibilities to make it a hassle. But when they were sorting out the Web Manifest v3, they designed it with desktop and mobile in mind, so new extensions won’t have problems.
It makes less sense since extensions actually ran on Android, e.g. via Nightly and creating your own list of exceptions. Also if you downgrade and install in an old Fennec version, extension will continue to function if you then update to the latest.
I think the move was an attempt to create a walled garden. But for whatever reason, they have now decided against it. Thank goodness.
Maybe they couldn’t guarantee that the mobile version could run well with all of them? That’s what I’ve always assumed.
Which I think is kinda weird decision since they could’ve just hidden a setting that unlocks all addons in the options. But maybe they were so incompatible at the time that it wasn’t worth the headache.
If you use Beta or Nightly, you can turn on dev tools and use a custom addon list from a collection in your user account. https://blog.mozilla.org/addons/2020/09/29/expanded-extension-support-in-firefox-for-android-nightly/