Jen,
I think it's safe to say we're all disappointed at how old Xul runner is. As well as the Eclipse version for designer in general. I'm pretty sure IBM does know of this - but I've no idea what any plan, if any, there is.
Regarding your desire to upgrade XUL in the client. There's a great blog post out today from Sven with some information on that. Sadly it does not look promising.
http://hasselba.ch/blog/?p=1263
The comment from Karsten is probably the most important piece.