Comment 2 for bug 279466

I believe this is because foxyproxy is installed in /usr/lib/firefox-3.0.3/ and the extension looks for the xml file there.

From foxyproxy.js:

var self;
var fileProtocolHandler = CC["@mozilla.org/network/protocol;1?name=file"].createInstance(CI["nsIFileProtocolHandler"]);
if ("undefined" != typeof(__LOCATION__)) {
  // preferred way
  self = __LOCATION__;
}
else {
  self = fileProtocolHandler.getFileFromURLSpec(Components.Exception().filename);
}
var componentDir = self.parent; // the directory this file is in
var settingsDir = componentDir.clone();