Rabbit out of a hat

To create a sense of immersion, logic plays a key role for me.
It has to make sense; it can't always be as "its because its magic."

I was reading Syp's entry on ArenaNet's use of home instances in Guild Wars 2 and while it seems like great way to make a connection with the player (via in-game housing), the way it sounds like it will be implemented doesn't sound 'real.'

There will be an instance of this area in the capital city that you can visit and interact with other npcs. You can invite your friends there. People that aren't your friends will not be able to go, but still have their own instance of the exact same area? Will you be able to see them, or will it be fully instanced?

Is that supposed to be magic.. that you enter some sort of portal and you have your house and the people that you interacted with in your travels.. but in reality it only occupies a small space like in a magical bag of holding, and other people has a mirror or parallel universe/space like yours?

I think that is what made the housing in UO special; you had a house (if you were lucky enough to find a spot) which anyone in the game universe could visit and interact with. The drawback was that there was a huge population and only a finite amount of space available to purchase property.

With the technology of instancing, Arenanet was able to accomodate the player's need of personal housing at the cost of logic and believability; what is the logic that everyone has their own personal space that occupies an actual area in the game?

I guess it comes with the territory of pve; where in reality the quest has been done hundreds of thousands of times by many other players. Heroes you would call them. But when you do that pve quest, you are the sole person of importance: you are the only hero.

Going back to a personal instance that you and people you allow have access to, if this technology or magic is possible, why is it only that small area and not the whole world? A world where you are the most important person: the king or queen?

I look forward to the personal quest and the home instance provided in Guild Wars 2, i'm just saying from what i've read on it, it doesn't seem to be logical.