You don't understand why it's an issue because you have some very fundamental misconceptions about what the block feature is doing. Not that I have all the details, but I am aware of the dev statements on the feature and have participated in some hands on testing.
The Block and Friends lists are altering instancing prioritization. Other factors are wings and almost certainly some sort of connection/ping test (details on this are sketchy, but people with large pings to each other or who are nearing the limits of their bandwidth certainly seem to be paired less frequently, other factors being the same). If you block someone and they are in a given instance, matchmaking will try to put you in a different one. If the total weight of the instancing factors in play are strong enough, this can separate friends from instancing with each other, or even split up wings. Gameplay can most certainly be compromised for many people.
I'll give you an example of what happened to me a few weeks back that I strongly suspect was due to two CMDRs blocking me:
My wing and I, which consisted of three CMDRs, two flying exploration Anaconda, plus my own Corvette for overwatch/support were intent on investigating one of the active Thargoid structures. We arrived at the structure, discovering that a pair of Imperial Cutters were already present. They didn't seem hostile, so we proceeded to setup. One of my wingmen moved in to land near the structure while I was investigating in an SLF. At this time the both Cutters opened up on his Anaconda, I switched back to my mothership and moved to engage, but it was too late...thirteen OCed MCs and a huge beam laser made short work of a non-combat fit ship. I covered my second wingman while he moved off fighting the Cutters until it became clear that there wasn't any practical way for me to drive either off without wasting all of my consumables. So, I was forced to jump away.
Since we were still intent on investigating this structure, and one of my wingmen was still on the surface in an SRV, I decided I would leverage my less ammunition dependent setup and faster shield regeneration by conducting hit and run attacks against the Cutters. I attacked, jumped away, immediately jumped back and made a bee line for the structure, then attacked again. I did this five times. On the sixth attempt, instancing failed. The game started putting me in an empty instance, separate from the one my wingmate was still in (which had two hostile Cutters in it). My attempts to communicate with the Cutter CMDRs also failed, suggesting a block.
I strongly suspect that the weight of instancing factors in an instance of three CMDRs whose players were all in relatively close geographical proximity, where one was winged with me, and two had me blocked, was enough, combined with me being overseas, to reliably exclude me from this instance.
Thus, my wingman had to drive his SRV about 20km away to a safe distance and we then had to reinstance, with me deliberately spawning the instance, to be placed together....all because a pair of players decided it was better to block the only ship that could potentially threaten theirs while they went about destroying less robust vessels encroaching on their claim.
Now, some assumption/inferences were made here, but it fits all experimental data on hand and seems to be the most likely scenario.
Anyway, given the way the instancing weight works, its exceedingly easy for this feature to have unintended consequences, or to be deliberately abused. I can think of countless ways to actively disrupt the game for other people with block lists.
Invite the wrong person to an event that requires careful instancing to be successful (PvP league, distant worlds)? One or two people secretly blocking others will waste hours of dozens of peoples time.
Want to win a fight or exclude an escort of a trader? Have everyone in your wing block the best pilot or strongest ship in your enemy's wing and then interdict their weakest member...chances are they will never get that blocked member in the instance.
Want to troll fuel rats? Get to the target in a rat call first and block the rats dispatched. Sure, you could just shoot the target down, and people do occasionally do this, but with block lists you can tie people up much longer and have plausible deniability ("I'll cover you until the ship with fuel gets here").
The possibilities are endless.
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