Things like hamlet defense, which could have been much larger in scale if it weren't for crystal tools only displaying 40 PC/NPC/Objects on screen at a time, suffer from a client side limitation more than they do a server side limitation. Hamlet defense is similar to campaign in FFXI but is forced to be instanced due to these limitations rather than a large scale open world battle.

I thought it was pretty obvious why hamlet defense was instanced even though it's content that would make better sense in the open world.