Yeah, people got distracted by trying to figure out how it worked instead of just using it like they would any other service. I think people shouldn't have pushed the federated angle as hard. It's great, but most people don't care about it as much as other stuff. It probably would have had a bit better user retention if it was explained with it.
That being said, mastodon is significantly more complicated than the average service people use. To someone not super tech savvy, it makes sense that it could be enough to push them away. Anyone can get used to it fairly quickly, but any fiction pushes a ton of people away.
As an example, I work for a company that does web stuff, We changed dropdowns with few options to a multi-select menu component and saw like a 20% increase in the number of people completing the form.