Hi

I believe that this is being adjusted in a future update and is currently being tested in our Nightly builds of Firefox.

In the current Firefox 92 release you can only reduce the menu spacing via userChrome.css. In the next Firefox 93 release (current Beta/DE) they have added support to reduce the menu spacing via "Density: Compact" on the Customize page.

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Note that "Compact" is no longer present by default as a Density choice in Customize.