What I am trying to point out is that open world areas would be an invitation to people who unfairly bot/hack their way to having superior items. So by having lower grade quality items than Instanced areas, it would discourage them.

Or perhaps your idea of having a craft able piece which drops off open world bosses and whereas inside Instanced areas, you are able to obtain the entire item, of course with different names. It's which ever road you choose to get your item. Main thing Yoshida wants is pretty clear when he mentioned non Instanced areas will be converted to Instanced areas. It's clear he is making a point that there is no room for people who bot/hack.