There are arguments for and against, and while camping Golden Efreeti Boots I probably could have been convinced that instancing is a good thing, but when I am able to take a step back and look at both systems objectively I become convinced that instancing is nothing but bad for MMOs except in very small doses.
There are many reasons, but one that has become particularely obvious to me lately is the loot problem. Ignore for a moment that by instancing content you're immediately inflating the number of available items well beyond where they should be if you want to bolster realm competition and community, as I'm not talking about that loot problem just yet. Let's focus on how it allows people to effectively rely on future loot, instead of striving for realistically available loot.
In an uninstanced game where there is no gaurantee that you will get the Silver Boots of Awesomeness from General Awesome that every guild on the server is waiting for, so you resign yourself to picking up lesser boots from the Newbie Orc Captain or a soloable questline. You do this not only because you realize that you will likely not get the boots you want any time soon, but because you want to ensure that if you ever are in a position to take out your highly contested nemesis that you are up to the challenge and able to do so with minimal complications as to increase your chances of success.
Contrast this with an instanced game where there is no such thing as a contested boss. Your boss waits for you, in fact you schedule a time and a place for him to show up and he's there. No fuss, no angry whispers, you smack him around a bit and he hands over your boots. Now you're awesome! Sounds good?
Well, yes.. but what about our friend the Newbie Orc Captain? He still has boots, he's just standing around bored in his own instance, maybe shining his boots every once in a while to make them more appealing but the bottom line remains the same - with instanced content people have no reason to obtain lesser loot unless it is obtained in passing. If you're furiously AEing Orcs to death in an effort to stave off boredom and some boots fly out.. hey, grats! But when you already know that not only can you kill General Awesome, but exactly what day and time you will, why bother with the stop-gap solution? Even if you're a little undergeared, it's not as if someone else can take the General from you, so it's ok if you take a few tries.
It's this mentality that all items in the game are always available to you or your guild if have the ability to kill the boss that drops them that negates so much of the other content. Crafted items? Quests? Who needs them, just plan out your DKP, and you can tell that in 14.5 days you will have your boots, so you might as well just log off until then. Really the only unknown variable is the drop rate, and so we've managed to turn the whole process into another aspect of the game that is based more on RNG than on other players as it should be in a massively multiplayer game.
Maybe I'm being biased, I admit I tend to lean much more heavily away from WoW no matter what that means I'm leaning towards, so let's look at the worst case scenario of an uninstanced game. You never get a shot at your boss, not once. Some guild of unemployed elitest jerks who live with their parents and have never kissed a girl has wasted their lives (as you tell it) in order to ensure you and your friends never had a chance to even see General Awesome in the flesh.
And so you move on into the next expansion, with your Shiny Captains Boots. Maybe you're feeling a little bit defeated, or frustrated, and sure that's a negative thing in a way, so that means instancing is good right?
I guess you could say that, as certainly people don't play games to be frustrated, but I don't think you can deny that if you saw someone run by wearing Silver Boots of Awesomeness that you would smirk a little bit at your nerdy desires, and maybe try a little harder to make sure that in this expansion you will be the one with the shiniest shoes, and it is that kind of healthy competition that makes an MMO truly memorable.