In my case, the XML file and xslt are on the same computer, same folder.
Right, and two files, even in the same folder, are no longer considered same-origin, for various reasons. Think things like the Downloads folder.
FF was the only remaining browser that supported xslt
Just to be clear, we still support it, but the same-origin policy for file:// was made more restrictive, matching other browsers. You can still use XSLT with no problems by running a local web server... Depending on your threat models you may also be able to set the pref to go back to the old file:// behavior to mitigate the immediate issue (see comment 3), but we don't guarantee that this will keep working forever.
It's not entirely clear at this point how, and whether, the old behavior can be re-enabled without exposing increased attack surface. It's entirely possible that the answer is "it can't be".
And as you note, the fact that no other browser supported this unfortunately makes it less likely that we will jump through significant hoops (possibly opening ourselves to security bugs) to support it...