Contested mobs are bad for games that have instancing available to them. The only players that seem to argue for contested mobs are those in the top 1% of the game, what about the other 99%?
      This may be true, but in my experience everyone eventually reaches that top 1%.  Most every mmo released has a level cap, a spiritual end to the game.  What are players supposed to do when they only have an hour or two to play?  Instancing allows developers an easy way out of some of the tougher problems facing designers namely: How are we going to keep people around to pay us the billions of dollars we expect for this game?

"Griefing" and "Botting" have caused havoc in these open zones with hundreds of players forcing groups into instanced dungeons just to get away from it.
       Again this is because of lazy companies.  They have terms of service/use which clearly, in most every game, say griefing and botting are actions which will result in temporary and or permanent bans.  The problem is is that companies want people's money regardless of whether or not the rules are broken.  Also, CS staff across the board are inept and incompetent when it comes to servicing the people that abide by the rules within the game.  Instances do not even alleviate all of these problems because it isnt overly difficult for groups of people to bot their way through instances.  Robert you hit the nail on the head with your response: "Instancing areas has become an alternative to good customer service. Developers have chosen to separate players through content rather than creating harmony through policy enforcement."

Now onto the second topic of raiding, I really can’t think of a good way to avoid instances with raiding. Contested mobs are demoralizing for raids. Only the elitist manage to mobilize and take down contested mobs fast enough.
        This is true, but raiding in and of itself can be demoralizing.  They demand huge chunks of time for organization, execution and loot distrobution.  On top of that with random loot tables people can run instances for weeks even months at a time and get nothing for the effort.  Yes, they can feel good that they have killed Boss X, but that doesnt pay for the repairs incrued on the path to boss x.  Not to mention how many times they kill boss X, its just a cheap way of adding "content" and adding longevity to the games without really adding anything of substance.  It's the carrot on the stick and something I personally find less than enjoyable.  You start off every game killing hundreds of wolves/rats/owls etc, mid way through the game you are killing hundreds of super wolves/rats/owls etc.  Then when you reach the endgame, well, you are now tasked with getting large numbers of people together to go into an instance and kill extra super wolves/rats/owls hundreds of times.