Looking in the Firefox extensions directory (See location of Firefox installed extensions), I see that some have .xpi files alone, but others have directories:
c:/Users/CENSORED/AppData/Roaming/Mozilla/Firefox/Profiles/CENSORED.default/extensions:
total used in directory 5241 available 56453112
drwxrwxrwx 1 CENSORED None 0 03-25 07:49 .
drwxrwxrwx 1 CENSORED None 0 03-25 09:32 ..
-rw-rw-rw- 1 CENSORED None 164722 03-04 09:37 compatibility@addons.mozilla.org.xpi
-rw-rw-rw- 1 CENSORED None 8359 03-10 12:38 copy-pure-text@kashiif-gmail.com.xpi
-rw-rw-rw- 1 CENSORED None 75035 03-04 09:37 extensionlistdumper@sogame.cat.xpi
-rw-rw-rw- 1 CENSORED None 1331409 03-04 09:37 firebug@software.joehewitt.com.xpi
drwxrwxrwx 1 CENSORED None 0 03-22 17:57 inspector@mozilla.org
-rw-rw-rw- 1 CENSORED None 37714 03-04 09:37 lockthetext@lockthetext.sourceforge.net.xpi
drwxrwxrwx 1 CENSORED None 0 03-04 09:31 sharing@addons.mozilla.org
-rw-rw-rw- 1 CENSORED None 97169 03-04 09:37 {3d7eb24f-2740-49df-8937-200b1cc08f8a}.xpi
-rw-rw-rw- 1 CENSORED None 258567 03-04 09:37 {46551EC9-40F0-4e47-8E18-8E5CF550CFB8}.xpi
-rw-rw-rw- 1 CENSORED None 220407 03-04 09:37 {73c39a20-8768-4a82-8b43-fc9535715c5c}.xpi
-rw-rw-rw- 1 CENSORED None 516216 03-04 09:37 {7f57cf46-4467-4c2d-adfa-0cba7c507e54}.xpi
drwxrwxrwx 1 CENSORED None 0 03-04 09:37 {81BF1D23-5F17-408D-AC6B-BD6DF7CAF670}
-rw-rw-rw- 1 CENSORED None 89442 03-04 09:37 {B17C1C5A-04B1-11DB-9804-B622A1EF5492}.xpi
-rw-rw-rw- 1 CENSORED None 709293 03-04 09:37 {DDC359D1-844A-42a7-9AA1-88A850A938A8}.xpi
-rw-rw-rw- 1 CENSORED None 27409 03-04 09:36 {E6175356-15A3-11DF-AFEE-C56455D89593}.xpi
-rw-rw-rw- 1 CENSORED None 876 03-25 07:49 {F78DC607-BB30-4e13-9E47-2C2E162E9094}.xpi
-rw-rw-rw- 1 CENSORED None 52880 03-04 09:37 {a0faa0a4-f1a7-4098-9a74-21efc3a92372}.xpi
-rw-rw-rw- 1 CENSORED None 413408 03-04 09:37 {c45c406e-ab73-11d8-be73-000a95be3b12}.xpi
-rw-rw-rw- 1 CENSORED None 634964 03-04 09:37 {d10d0bf8-f5b5-c8b4-a8b2-2b9879e08c5d}.xpi
-rw-rw-rw- 1 CENSORED None 686225 03-24 08:07 {dc572301-7619-498c-a57d-39143191b318}.xpi
drwxrwxrwx 1 CENSORED None 0 03-04 09:37 {e4a8a97b-f2ed-450b-b12d-ee082ba24781}
-rw-rw-rw- 1 CENSORED None 41715 03-24 08:55 {e6c4c3ef-3d4d-42d6-8283-8da73c53a283}.xpi
drwxrwxrwx 1 CENSORED None 0 03-10 12:38 {fc2b8f80-d9a5-4f51-8076-7c7ce3c67ee3}
For instance, {e6c4c3ef-3d4d-42d6-8283-8da73c53a283}.xpi is a file, while {e4a8a97b-f2ed-450b-b12d-ee082ba24781} is a directory of files.
Why are some extracted fully and others not?
Before Firefox 4 all extensions were extracted when installed. This behavior changed, the new default is to keep the extension as packed .xpi file for performance reasons.
Extensions can still opt into the old behavior by specifying <em:unpack> flag. I've seen some extensions use this flag for no good reason whatsoever, others do it because they rely on a particular way to access their files (especially all add-ons created with the Add-on SDK before Add-on SDK 1.5).
In some cases it is really unavoidable that the extension is installed unpacked, most commonly for extensions containing binary XPCOM components or plugins - the operating system needs an actual file to load the dynamic library, it cannot be loaded from inside an archive.