Zones are tiny is true to get around the PS3's memory limitations.
We have open world bosses through fates. I'm sure there's a lot that wants them separate from fates, however this is not a ps3 limitation.
Instanced content has nothing to do with PS3 limitations. SE could have added open world dungeons that had tiny zones like FFXI. Instant content is so players can do content and not compete with each other.
Edit: Expanding on tiny zones. The memory problem is with the limited unique assets that the PS3 can handle. Larger zones are possible, however the larger the zone the more copy and pasting will need to be done.
