ATM XMPP federation is still up and running. If enough people approach the Messaging folks at Google with coherent, well-reasoned reasons for leaving it up (and perhaps securing it with TLS!), then it might get left up for good.
Sorry, but the new Hangouts does not support federation. The old GTalk network, though, does. If a message comes into the latter from non-Google servers, they only show up in connected XMPP clients, not on Android or GMail after upgrading to Hangouts. If the intended recipient does not use a 3rd party XMPP client and has fully upgraded, he will never see the message!
For outbound traffic some odd stuff is going on. Presence from all Hangouts endpoints still propagates to GTalk and thus federates. Messages can also be sent. But again, that's one way and replies are not delivered to Hangouts. Additionally, XMPP iq-type requests to Hangouts endpoints are not responded to, violating the core XMPP spec.
