I absolutely agree with you about users already running dnsmasq, but the context here is a malicious developer abusing their position. The actual quality of the software is orthogonal.

I still think you are understating the risk of a malicious DNS server. As you note, many users will have unpatched IOT or network facing devices (e.g. cameras, baby monitors or other smart gadgets). With DNS spoofing they all become vulnerable to a remote attacker...

Maybe we can agree if we consider different types of users? Technically skilled users are likely to stick to secure hardware and have an awareness of their general software vulnerability. They choose their passwords carefully and are concerned about compromise. Less saavy users are more likely to own insecure devices, use the same password everywhere and be less concerned by account compromise.

High skill users have more to fear from a Web Extension, its impact is undetectable and can siphon passwords. Low skill users have more to fear from a malicious DNS server, they won't notice the lack of HTTPS on none-HSTS sites and their hardware will get compromised remotely.