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I would indeed say 1000-5000 users instance should be the soft spot. Having a look at https://lemmy.fediverse.observer/list and filter by 1m (monthly active users) shows that 27k are on Lemmy.world, while Lemmy.ml is second with only 3,8k.
A healthier solution would be to have all the small instances (imagine the 25 biggest, so up to Lemmy.zip) to gain users, so that LW would be less critical
Is there any functional difference between 4 people funding and running 1 instances vs 4 people funding and running 4 instances?
Scale that to a few millions on 1 instances and you get Reddit, so there is at least a difference in terms of decision making
Their ALL feeds will only have their individual servers unless their users go to the other instances and subscribe to communities. And only the communities they subscribe to will be fetched. But they'll be fetched for all users on your instance with only one sub.
(Technically they're pushed and not fetched.)