So, before I go into a lot of details, this may be more like semi-persistent worlds only accessible to those with the correct rights. It feels like instancing, in that it's inaccessible to most people and can be reset by the owner, but there may be a big enough difference that someone calls me on it. To those folks, I'm sorry if our definitions are too different to allow the use of the term, but try to consider the idea none the less!
Now, with that out of the way, some folks may have read between the lines that I'm not a fan of instancing. It doesn't seem conducive to a community environment since it allows griefers to go out and do whatever they want without giving players a way to police themselves... or does it?
While it's not actually an MMO, I've been playing Animal Crossing: City Folk a lot lately with the wifi on and my gates open, allowing anyone that I've registered (and that's registered me) into my town. Every player gets their own town to play in, build, and decorate (make orchids, breed flower hybrids, design clothes). Players can visit each other to fish, trade items, watch a traveling musician, help with redecorating...
... or ruin flowers, chop down trees, steal items left out, etc. For such a casual game, Animal Crossing's use of real world time for events (i.e. trees need 3 or 4 real days to grow, only so many flowers will reproduce per day, etc ) can make it so griefers can really cause some issues for players. While you can tamper with the game's time in order to skip around, the game has a few things in check to discourage this, making some features shut down if it detects "time travel."
What does this have to do with instancing?
All players essentially have their own instance to do whatever they want with. Other players can come over and also effect your town, for good or ill, but you have to let them in... kind of like with vampires, except that these folks can come out during the day. You're safe in your town until you interact with other players, and obviously if you want to have constant access to people and variety of destinations, you're going to have to meet new people.
I used a site called animalcrossingcommunity.com for this (ACC for short) . It's not perfect, but it attracts a good amount of players. Some folks are keepers, some aren't. I found a few dead beats who trashed my town, but the good ones were quick to help me repair things and even improve my town! When disaster strikes, you always learn who's got your back.
Mechanic wise, AC:CF has a few things most other instanced games don't have. First, its instancing limits player access to others by forcing parties to exchange information and specifically allow others into the instance. Unlike, say, World of Warcraft, the instance is specifically designed to create barriers so that people need to make connections outside of the game. You can't simply turn on the game and mess with others.
And this is where community comes in. ACC uses forums, profiles, and a rating system, combined with a basic "hosting/LFGame" feature. Again, not perfect, but it's a lot better for tracking reputation than anything most heavily instanced MMOs can offer these days. People who ignore these tools and attempt to use it similar to WoW's "Dungeon Finder" system will quickly run across the griefers, while those who take some time to develop personal connections will be able to create a social network and support system, for when someone slips through the cracks.
To me, this sort of instancing in some ways really works. It makes it so that people need to try harder to be social in order to play with others. Those who mess up may quickly find themselves unable to play with others. A sort of "jail" that's essentially the default game. You may not get sweet vengeance like you can in a PvP game, but think of it like giving players the ability to perma-ban. If word spreads enough, that player simply cannot play with others, sort of like in old school MMOs or MMOs/servers with low population and tight-knit communities. Given the option, I think I like banning people and pointing out the lamers so others can "ban" them is a lot more awesome than simply killing them. Nothing makes people rage more than a blank wall (if not, try using your ignore features more often! You're bound to meet a few folks who quickly switch characters/accounts just to continue raging at you).
It also makes me wonder if, perhaps, this may be something the upcoming Prime World (http://massively.joystiq.com/2011/06/07/e3-2011-nival-announces-facebook-integrated-mmo-prime-world/) will be using, since it also seem based on friend lists and common territory. I'm still not totally won over by this system, but I personally find that forum users tend to be a higher class of player than people who "just play the game." They have a bit more invested and are seeking others for social contact, while people who use instances for instant gratification are only grouped up to "beat the game."