At that time the pic16Fxxx and pic18Fxxx were slower and not C optimized.
There were third-party C compilers for the 16F series, but I've never used them (just tried, but it wasn't worth it.) But those 16F parts had pretty small memory anyway (except for the bigger 16F877 AFAIR, but it was still pretty small), so using C didn't make a lot of sense anyway. I programmed them in assembly and it wasn't all that bad. The banks were annoying but just something you'd get used to (just required some planning), and the assembly was easy to master.
Then the 18F series appeared, with a hardware multiplier, more memory and better performance. Microchip had their own compiler at this point, called MCC18. I only ever used C on the 18F series, and it worked absolutely great. I frankly couldn't care less whether the architecture was really adapted to C or not, it just worked.
I can't tell if the AVR MCUs of the time were indeed more powerful than the PIC18F series or not. But the 18F were certainly pretty capable 8-bitters, with a nice set of peripherals.
The pic24F and dspic33 were way better than the atmegas deployed in arduinos, but they came a bit later and with 3.3V I/O and perhaps more expensive. Also not sure free C compilers were available for pic24/dspic33 at that time..
And you're missing a major step. The dsPIC line started with the dsPIC30F series, which had a wide Vdd range of 2.5 V to 5.5 V (so perfectly usable in a pure 5 V system), and were a lot more powerful than ATMEGA stuff. The Microchip C compiler was MCC30. I don't quite remember if it was really available for free or not, but I can tell you for sure that you could use it 100% free with no nasty hack involved. (When Microchip introduced the XC line of compilers, there was a free version - with limited optimizations - available right from the start, but I don't remember their policy for MCC18 and MCC30.)
As to this 5 V thing, this was largely completely idiotic, but out of habit, I remember that as a hobbyist, I was also a bit afraid of switching to the 3.3 V world for some reason. That was more than 20 years ago. It turned out there was absolutely no rational reason for this.
But unless it's a specific requirement for some environment - which is almost never the case as a hobbyist, unless maybe you're designing vintage electronics, there's absolutely no reason to stick to 5 V logic these days. This fear of "lower than 5 V", that, as I said, I admit having as well at some point in the past, is hard to understand in hindsight even 20 years ago, but in 2021, hello? It's completely irrational.