In the current Firefox 92 release you can only reduce the menu spacing via userChrome.css. In the next Firefox 93 release (current Beta/DE) they have added support to reduce the menu spacing via "Density: Compact" on the Customize page.

• [/questions/1349930] New FF update alters bookmark folder
• [/questions/1350206] New Firefox Update Bookmarks Toolbar (Show more bookmarks)

Note that "Compact" is no longer present by default as a Density choice in Customize.

• https://support.mozilla.org/en-US/kb/compact-mode-workaround-firefox

Yes and no?

In the past, various users have posted (unofficial, community-supported) style rules to split the bookmarks list over multiple columns. However, these rules are not "one size fits all" and require tweaking various parameters. I haven't gotten them to work well with folders that contain an enormous number of items (requiring more than 4 columns), but if you want to play around...

/*
  Multi-column Bookmarks Menu for Fx92
  Ref. https://www.reddit.com/r/FirefoxCSS/comments/m2iu4z/firefox_multicolumn_bookmarks/
  TODO: horizontal scroll for too many columns? [2021-09-23]
*/

/* USER PARAMETERS */

#bookmarksMenuPopup, #BMB_bookmarksPopup {
  --user-top-bottom-padding: 2px; /* spacing tightness; default is 8px */
  --user-items-per-column: 45; /* reduce if the menu doesn't fit */
}

/* RULES */

/* Modify bookmark spacing only in bookmark menus */
menupopup:not(.in-menulist) > menuitem, 
menupopup:not(.in-menulist) > menu {
  padding-block: var(--user-top-bottom-padding, inherit) !important;
  min-height: unset !important;
}

/* Keep width to a reasonable total */
#bookmarksMenuPopup, #BMB_bookmarksPopup {
  max-width: 80vw !important;
  overflow-x: scroll !important; /* DOESN'T WORK */
}

/* Apply grid layout */
.menupopup-arrowscrollbox * {
  display: grid;
  grid-auto-flow: column;
  grid-template-rows: repeat(var(--user-items-per-column, 40), auto);
  grid-auto-columns: minmax(200px, 380px);
}