Some of the contention in this discussion follows from physicists' sloppiness about making distinctions. The symbol ##x## can mean:
- An operator (the position operator, in QM---there is no position operator in QFT).
- A variable
- An unspecified constant
Similarly, an expression such as ##f(x)## can either mean a function, or the value of the function at a particular unspecified argument ##x##.
I don't think that these ambiguities cause problems for physicists working alone, but they cause problems for communication.
The specific example ##\delta(x) \delta(y)## is yet another ambiguous expression. Since ##\delta(x)## is a distribution, this expression appears to be the product of distributions, which is undefined.
However, we can certainly make sense of it as a distribution on ##R^2##. That is, as a functional ##F## that takes a function ##f## of type ##R^2 \Rightarrow C## and returns an element of ##C##.
##F(f) = f(0,0)##
Writing this as ##F(f) = \int dx dy f(x,y) \delta(x) \delta(y)## is no more an abuse of mathematical notation than the notation ##\delta(x)## in the first place. For most purposes, the notation is useful, as long as you have a feel for when it gets you into trouble.