FUSE can be used in many different ways. The below comments are just some short and minor corrections. It's a totally different issue how much they could be true for a FUSE-based union file system.
Thankfully FUSE file systems can be used as root file systems. For instance NTFS-3G is used by some Linux distributions as root file system for about two years.
FUSE is often used in embedded systems. One example is djmount but NTFS-3G is also included in many consumer electronics, NAS, set-top boxes, multimedia players/recorders and many other different type of devices.
Typically the dominant performance factors of general purpose, block device based file systems are the file system design, quality of the implementation and optimization/tuning to the specific hardware platform. A FUSE file system can be high-performance too if it's used efficiently.
FUSE can be considered as a kernel file system driver where the slow paths are forwarded to user space. One could also think about it as a high-performance kernel network file system with extremely low latency and high bandwidth. For instance the current best write performance of the NTFS-3G driver is 1.83 GB/s and it's the 3rd fastest in metadata operations after btrfs and ext4. Which I think is not too bad considering that it's not fully optimized yet.