Yes which is a feature of the fediverse, not a bug.

If the admin blocks an instance it's either a community you as a user won't want to be interacting with, or the user has chosen the wrong instance for them to be on.

I don't know why people say that every instance not federating with every other is a bad thing. It's not. I definitely don't want to interact with the extreme right instances around so I choose one that I feel at home with and that has them all blocked. I think that's the beauty of the system.

No, it's a bug, not feature. Those content should not flow into your timeline if your friends are all nice and vile accounts are banned on your instance. The fact that instance owners not just can, nor just do, but HAVE TO block a bunch of demonized instances as a checkbox obligation and compromise and virtue signaling is a bug.

How my community wants to operate is not beholden to your standards if my instance wants to block the stormfront mastodon instance it's going to and nothing you say is going to make anyone on my instance change their minds about that.

I have not seen any evidence of any major instance ban another instance because it refuses to ban yet another instance. There would be no reason for that. Messages from the controversial instance still won't make it to the instance that demands the 'virtual signaling' even through my instance.. unless some user on my instance essentailly quotes whole posts.