It's a downside in my opinion, considering the police in most countries assist in maintaining the control of corporations and authoritarian governments. To offer services to them knowing this is a negative ethical marker for a company.

Your argument cannot be considered as an "reductio ad absurdum”, as it didn't show any absurdity in your opponent arguments. Your argument could be considered as either an "argumentum ad lapidem" (dismissing a claim as absurd without demonstrating proof for its absurdity), but more realistically it is indeed a strawman, as you try exaggerate you opponent argument in order to weaken it (avoid because Israeli != avoid because of possible link to Israeli intelligence ties).

Still, you are right to doubt some of your opponent proofs. I too have my doubt on that claim, but don't have the time right now to fact check it.
Feel free to link your own research here, if you find more reliable sources.

Matrix is so laggy and clunky and slow and annoying. XMPP was just perfect. And the “Conversations” client, for XMPP, is so fucking fast.

I've noticed that as well, XMPP has never been laggy in my experience, it's very snappy. Matrix is hit or miss, sometimes fine, sometimes a bit slow, especially in larger rooms.

How does XMPP’s E2EE compare to matrix’?

As far as I know, XMPP's OMEMO encryption is modeled off of Signal's encryption, but modified to function without a centralized server. It's generally regarded as a very solid, strong encryption, even better than openPGP.

Matrix's encryption uses Megolm or olm, which I believe is also regarded well as far as the encryption itself. The issue is that Matrix's inherent design means it's spreading copies of the metadata of those messages (though the contents of the message itself is encrypted) far and wide to many servers unnessesarily. Seeing as a lot can still be gleaned from metadata (when a message was sent, to who it was sent to), it's a concerning model considering how big the main Matrix server is, which means that it usually always receives a copy of all metadata activity on the protocol, unless a self-hosted server completely kills federation (which defeats the point of it).

A good comment from an older reddit thread summed it up well:

matrix.org is unique because it hosts so many user accounts. As a result, it becomes a metadata honeypot for the entire matrix network. It's kind of a design flaw in my eyes. Matrix is great. But it would be even better if it didn't have this issue.

Xmpp is federated, but you have the option of not sharing chat metadata with other servers on the network. Matrix doesn't give that option. matrix.org is effectively a central server due to the fact that a majority of accounts are hosted there, AND all metadata associated with those accounts, which includes metadata from other servers they communicate with, accumulates on matrix.org. I would suspect a very high percentage of matrix metadata, ends up on a single server. Xmpp just does not have this problem.