I'm of two minds about this, really. While i would love the open world feel you are talking about, there are all sorts of long-running issues that plage MMOs that previously took that approach, such as people standing there watching you fight a monster, then rush in and kill it, jump up and down and run off. Or having to wait on respawns for quest-related mobs you have to kill.
Instancing solves both of these problems, as only you and your group are hitting that particular area.
I really wouldn't mind instancing because every TES game has required zone loading, and I'm used to it. As long as the loading doesn't take so long that I can go to the bathroom, wash my hands, go to the kitchen, nake a sandwich, go back to my computer room and still have it loading.