I don’t think I am. Hence why I think we are very close. I have been saying precisely that a player does indeed not need to be subject to another grid physics, collision, gravity etc until you transition to it. The game does not calculate any of those until you transition from a grid to another.
But players often need to exchange information with content which is far away and outside from what you call local “instance”especially regarding coordinates. It happens all the time in Elite. Which leads me to a reminder to see if you can answer the question in my first paragraph above. Give it a go.
To answer that question, again, we come back to coordinates, not physics grids. The maths is there, relative positions are known in relation to each other. It doesn't depend on physics grids at all.