Earlier quoted context omitted.
Data is encrypted client-side, so even Mozilla can't read it. If someone hacks Mozilla, they could get your encrypted data, but without your passphrase, they won't be able to read it. On the downside, if you forget your passphrase, you won't be able to read your data either (you have to wipe your account and start over).
Are you sure? According to this: https://wiki.mozilla.org/Labs/Weave/Sync/1.1/Setup it says the passphrase you use is sent in the clear (over HTTPS) to mozilla every time you get the data. That implies that while the data may be stored encrypted client-side, it's decrypted or at least verified server-side.
The password is sent to the server, but the encryption key is not. For more info, see: https://support.mozilla.com/kb/where-can-i-find-my-firefox-s...