You make good points. I think the best solution that would put both sides at peace would be to have it where blacklisting another player causes their character to vanish from your end locally. No reports filed, no foul words exchanged, out of sight of out of mind. There are online games that have a blacklist like this, but since I doubt Enix are going to take into consideration one person's idea for a feature, eh.
To me, a public place is a public place. Whether it be in a video game, or real life. If you're having a midnight dinner with your husband at a Restaurant--and ten strangers dressed as clowns surround your table then start to dance and wave around flashlights, would you not be annoyed? Even more so if they refused to move because it's "a public space"? It would be irritating, you wouldn't want them there. Even worse if they refuse to leave. It'd be harassment. Normal people do not get that close to other people like that. It's malicious because they know you don't want them there. You told them so.
I get it. FFXIV is a game. But like, no matter how you spin it, the same principal applies. It's harassment. These people are purposely bothering me, I tell them to stop, they don't. So while yes I can just "get over it", just know that they are breaking the TOS while simultaneously being immune to it. I am a player, I am being stalked and purposely annoyed, that's that.