I think the big issue with XMPP are the clients. Element is so much better that it's hard not to recommend Matrix to people despite its bloat and metadata leakage problems.

JMP/Snikket for tying a normal phone number to your XMPP @ are really convenient, but the clients remain a problem. Plus, SIP dialers are not supported on IOS afaik.

I am really surprised there isn't a venture backed company pushing XMPP forward. Maybe people have tried and realized it's not viable.

One technique employed by microvm.nix[0] is to mount the hosts /nix/store into the guest. This won't shrink the size of the system, but should allow it to be amortized across many different VMs.

I'm not sure how exploitable a read-only virtiofs share is, so this is perhaps not appropriate in some circumstances.

[0]: https://github.com/astro/microvm.nix