So is it obsolete or not?
HST’s resolution can be outclassed by terrestrial telescopes fitted with adaptive optics, so in that respect the claim “terrestrial telescopes fall short of HST’s resolution by a factor of 10 or more” is not true, not by a long shot. On the other hand, Hubble can work 24x7 ‘cos it’s always nighttime in space.
The cost-benefits of keeping it in working order have to be getting marginal though.
Personally I don’t see why we can’t launch an optical space telescope with a 5m mirror on an EELV. Would make a great companion to JWST. Cost is an issue of course, but with instruments for Hubble running at ~ $100m each and a Shuttle launch costing half a billion dollars, keeping Hubble running is not exactly cheap. Apart from Hubble every space telescope is designed for “disposable” use with a nominal lifetime.