Firefox isn't forcing Manifest V3, is it?

I guess that kinda depends on what you mean by "upload". If you simply mean if user can point the extension to load some local file eg. via <input type="file"> then sure, that works just fine.

It sounds like the issue you mention regarding uBO Lite is not about if it can read a local file, but rather that it can't use that data to update the active filter lists - perhaps because it already has too many dynamically inserted filter rules, but that's just a guess.