Birth by Sleep How powerful is Master Xehanort?

You nearly answered your own question. While Terra may be stronger than him, Xehanort's plans have really screwed up so many lives. He doesn't need to be the strongest character to be a threat. Just look at BBS, he got rid of Ven, Aqua, and Terra(despite losing to him) all in one shot. He admits to being hasty but in the end he still had plenty of backup options to go about his efforts. It's not his strength that's scary but rather his smarts.

Still, to answer your question, Xehanort is admittedly old. He's probably gotten more control over darkness over the years but there's no doubt that he was stronger in his younger years. Terra may have beaten him but a young Xehanort just might be the single most powerful character in the series(armored Xehanort or "Mysterious Figure" Xehanort at least). Honestly, Xehanort doesn't need to be stronger than everyone to win. He's still given out plenty of ass kickings to every keyblader in the series so far.

 

Xehanort is indeed very formidable in terms of his "Machiavellian" ways of doing things, but his strength in the regards to physical side of things has dwindled due to age. However, I do not think that was oversight in the slightest, as he planned to take over Terra's body in order to become physically powerful once more. The only thing that overcame his plan was Terra's willpower embedded within his Keyblade Armor.

 

Don't forget that Master Xehanort has wreaked havoc for much smarter people. As Terranort(debatable on whether or not it's MX in control or a new personality) he kicked out Ansem the Wise and manipulated so many people into forming Organization XIII and then got all of them to believe that

Spoiler

They had no hearts and needed Kingdom Hearts to become normal when in reality, Xemnas just wanted to turn them all into Xehanort. Weird, but it's true.

So that's 13 people(12 Org. members and Ansem the Wise) that he's fooled and/or outsmarted. Also, nothing Yen Sid and Master Eraqus has done ever slowed Xehanort down. They weren't able to keep up with him and Eraqus could not see a second betrayal by Xehanort despite the fact that it happened before his eyes(Xehanort changed how the Mark of Mastery was supposed to be done and then messed around to make Eraqus believe that Terra was losing control over his darkness).

Really, it's hard to believe that even after all his planning he still gets held back by the power of friendship(quite literally).

 

They still went along with his plan right up until the end. Actually, Xigbar(Briag?) is still following orders from him.

Anyways, to answer your question. No. Master Xehanort has the brains but he's more than likely weaker(physically at least) than just about every incarnation. Definitely Xemnas, Terranort, and young Xehanort are all stronger. I can't really argue about Ansem Seeker of Darkness(his Heartless) because he used that dark guardian thing for pretty much all his attacks, but it's likely Ansem is stronger than old Xehanort. This was the whole point of him wanting a younger body. He just got old. XD