Is Firefox's new widget feature revealing your city and time zone location?

That sounds like two different signals. The weather card can be based on the IP/VPN location, but the time widget can still use the browser/OS time zone exposed by JavaScript, so it is not surprising if your local zone appears first. It usually does not reveal a city by itself, but it can narrow things down. If you do not need the widgets, the simple option is a blank new tab/home page. Firefox’s resistFingerprinting can also normalize time zone behavior, but I would only use that knowingly because it can break or annoy normal sites.