I came across this material in my uncles house when he wanted me to change receptacles to ones with grounds. When I saw how flimsy and vulnerable this stuff was, I declined it. I did recommend he keep his fire alarms operational.
Many times. It is very common in the homes and barns in my area. I have seen exposed wiring in barns with all the insulation gone from the conductors for short distances. I tell people, if it were in my buildings, I would have it replaced. Some do, some don't. Changing out a switch or a fixture can be a real challenge with the insulation falling off the conductors. And working in crowded panels with that wire is risky too. Replacing it is the only real answer to the problem.