They don't want to federate because Twitter does not.

But neither to "extinguish" Mastodon or so. They need it as a defense like Google uses Mozilla, showcasing that not only do they enjoy competition, they in fact actively support it, by making their content available over there, too.

Because like you say, the entirely metaverse is so tiny compared to meta, thy could not give a flying fuck whatever the reason if it's about anything competitive. But they can utilize the tiny underdog as a shield from criticism. And that's valuable to them.