@Gwendolyn
I was actually thinking of something similar, where instead of "real time federation" you can "visit in other instances" using in game portals(that connect servers), that way servers can opt in/out from specific federation to allow balancing(and mods/plugins)
@RustyStriker That awakened a memory I hadn't thought of in a long time.
What you proposed kind of reminds me of the concept behind Furcadia. Now, I haven't spent any real time with it, so I can't speak authoritatively about it, but iirc, in game, it's set up the way you outlined, but it's all hosted on one server.
Something like Furcadia could totally work with a federated setup.