If they're all instanced, they're in the same instance until someone re-instances. AFAIK, block works on the instance matchmaking, and not within the same instance. So in your example, I'm not sure that'd work unless they literally flew so far away to de-instance. If they had left the shared P1/P2 instance and had been blocked whilst out of that...they wouldn't re-instance with those players.
Player 3 literally flew far away but without going into hyperspace...although we haven't seen it on our radars.
As shown by a recent problem in the mining field, the distance to move away is approximately 26 km. Am I right?