Honestly, most of the time even in non-instanced games, you generally 'see' less than 50 people at a time anyhow.
All the zone chats are linked. So it's not as 'separating' of people than one might think.
Which never made sense to me. If we're going to be seperated 50 at a time into an area like...risa,or a starbase (no combat) why limit us to 'only' 50 people,but subject us to the banalities of zone-wide chat channel that labels everybody as to what zone # they are in?
WOW, by comparison, is wonderful when you visit Ironforge or Orgrimmar and see hundreds of others chatting, dancing, dueling, and emoting. It feels 'alive'.
I don't know if things have improved with WOW, but Ironforge and at times Orgrimmar were almost impossible to visit because the lag would prevent you from moving an inch. This was especially true for Ironforge, I never went there unless I had to. I usually used a rune stone to transport in or out.
WOW would have been a much better experience with even more instancing in my opinion. Excessive lag is a game breaker for me.
I think the instancing would be ok if they raised the cap. What is the point of having a huge fleet if you cant even get a quarter of your members in the same instance. Also they should fix it that if you go somewhere and you are grouped up you should zone, with that group, into the same instance. Especially for things like fleet actions and such. It should be an easy fix. Just implement code that creates a fresh instance for your group or fleet.
Another thing I think would fix the boxy feel, which they probably will never do, is to get rid of sector space. Why can you not put those same system in the sector space and use regular space art. This would give a feel for flying through space and not some funky 3d map. I really do not see why that cant be done. Just remove funky grid lines and add space. Leave the system in the sector space as they are.
Honestly I don't think many people actually have a problem with the instancing- they have a problem with the generally small zone size and instance population caps. If zones were, say... doubled in size and doubled in capacity, I suspect far fewer people will complain about instancing.
Those are separate things, however. Zones can be made bigger and the player cap can be increased without any change to the instancing engine. Well. I would assume as much, anyway, else the engine would be kinda crappy and inflexible.