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Besides the privacy issue, the TOU is ridiculous. They supply a tool (the browser) and you use it. It's not a collaboration between you and them. You can use it whatever way you want.
At a time when they could actually be pushing the Manifest issue and try to finally get a foothold, instead it feels like they have scattered rakes around the yard in the middle of the night and decided to go for a jog.
Doing some digging, this is what has been added to the privacy notice:
You have the option to use a third-party AI chatbot of your choice to help you with things like summarizing what you’re reading, writing and brainstorming ideas, subject to that provider’s terms of use and privacy notice.
If you choose to enable a chatbot in the sidebar and/or through a shortcut, Mozilla does not have access to your conversations or the underlying content you input into the selected chatbot. We do collect technical and interaction data on how this feature is used to help improve Firefox, such as how often each third-party chatbot provider is chosen, how often suggested prompts are used, and the length of selected text.
In other words, there will be opt-in LLM functionality that can be tied to third party providers. When you submit information to them... they have that data... the data falls under their privacy policies, not Mozilla's.