WoW started instancing content out in the world several expansions back. As far as I remember and know, people can seamlessly phase in and out of each other's instances. In fact, I think the made it work across realm servers.

So, it seems it's proven possible without this hybrid p2p model, which has a sharp performance downside for shooter pvp.

I don't understand the decision. Is there something more nuanced experience-wise that their system achieves? Or could it be something else, like an attempt to save on infrastructure costs?