How Did PCGS Grade This 2000 Mule Dollar As XF?

Using the Sheldon system, I'd say this looks pretty close to EF.

Yes, the face has seen better days.

What you are seeing is a result of decades of gradeflation - the gradual decline in grading standards. Gradeflation has been worse in America compared to Australia, and Australia has been worse compared to Britain. The near-ubiquity of TPGs in North America has seen gradeflation there come to a halt finally, but the damage has already been done - American grading standards are noticeably looser than ours.

That gradeflation has occurred is provable, simply by comparing the grading standard to the actual literal meaning of the words used in the grading system. Once upon a time, a coin in Very Good condition actually was rather nice; now, it's kinda awful.

One of the main complaints about, and causes of resistance to, the American TPGs in Australia and Britain is the TPG's insistence on using "American grading standards" to grade non-American coins. It effectively means that local collectors need to learn two parallel grading standards, a confusion heightened by the two standards using identical terminology to mean different things.

My general rule of thumb: American EF = Australian VF = British Fine. It's a little more nuanced than that, especially for the higher grades, but it works well enough in most cases. I'd personally grade the OP coin a solid VF. If you're grading that coin "Fine", then your grading standards are "too British". Or you're "too old-school", depending on your point of view; British and Australian grading standards were essentially the same back in the 1960s.