I see -- I closed all the tabs except for the last one, then I right-clicked on the tab and chose "close tab." That closed Firefox as well.
I guess I don't know of any reason to close that last tab and still have Firefox open, maybe that's why I'm missing the point of the add-on and didn't see anything wrong with Firefox 3.5.x.
Saw this comment posted today by "Manuel" in the "reviews" section for this add-on:
No extension needed for not closing last tab
browser.tabs.closeWindowWithLastTab = false
To show the close button on the right instead on all tabs:
browser.tabs.closeButtons = 3
But this extension is still handy to show the close button on the last tab.
Anyone tried that instead of the add-on? Just curious.