I think a reason often overlooked that it will never work large-scale, long-term, is exactly because of the federated servers. Any server is at the whim of whoever is running it, and if they die or get bored or have a breakdown or money runs out, that server is gone. This is the same problem with Discord server, subreddits, etc. except much more likely because there's actual costs associated with it, whereas other servers you don't pay for personally.
While this is true of ANY media site, it's just much more likely to happen with Mastodon servers, and that combined with all the other limitations make it unlikely to ever truly gain traction. Something like Cohost is probably the compromise that would be most likely to catch on while still being a decent compromise - still publicly funded, so no ads/algorithm, but also centrally moderated to minimize risks. Unfortunately something like Hive which is just another venture capital Twitter, but has a very low barrier to entry, is most likely to rise up.