As much as I'm a fan of Open Source and support Firefox I don't think there's realistically any battle to be fought here.
Flash has nearly 100% install base across every single browser and can get users to upgrade extremely quickly with their nearly-automatic upgrade system.
Not to mention the horde of experienced Flash developers chomping at the bit to make offline versions of their apps.
Firefox isn't going anywhere. Even if Apollo catches on like nothing since C, it wouldn't kill Firefox; the user still needs a browser.
Yes, FF supports rich application development in XUL, and yes, Apollo might compete with that somewhat, but it doesn't really matter. XUL is there not as a feature but as a tool: the FF UI is built with XUL. That it is useful for others is really just a detail. In FF3, there will be more emphasis and support given to XUL apps, but still, it's there for the browser.
Also, the degree of competitions between FF and Apollo is, I think, overestimated. Apollo is basically just another RAD toolkit. XUL apps aren't desktop apps, they run directly in the browser just like Ajax apps. That gives them an entirely different use case than Apollo. (E.g. if FF becomes widespread, XUL might compete with Ajax when building something like gmail. Apollo wouldn't--a desktop app built with web tech is still a desktop app.)
Flash has nearly 100% install base across every single browser and can get users to upgrade extremely quickly with their nearly-automatic upgrade system.
Not to mention the horde of experienced Flash developers chomping at the bit to make offline versions of their apps.