Actually, I consider the X-T1 to be a great street-photography tool. Slap on a 27/2.8 pancake and you'll have an unobtrusive looking box that is great for this goal. The 27/2.8 may not be weathersealed but it can withstand a drizzle or two. If you want something longer, the 35/1.4 is a good choice. Personally, I have a 18-55/2.8-4 which is a good allround lens (although it already looks like some serious glass which makes street photography harder).
I don't have enough experience with the camera yet to provide all the nitty gritty details, but every time I see the results from a couple of fellow X-T1 users I'm pretty impressed. Weather permitting I might just give it a go this weekend.
As for the assumed smearing: I work in JPEG these days and have no complaints. Capture One does an outstanding job on the RAF conversion but so far i haven't really found the need for it.
I'm starting to sound like a fanboy, which I certainly am not. So I'll just shut up now and let I@M do the Fuji-talking