I think most new instances will start as a VPS, some already upgraded to dedicated servers. But storage is, even in these days, costly when it’s actively used storage. How hotter the storage tier, the more it will cost the server owner.

Communities like which share memes and stuff often have an enormous amount of posts, which are viewed frequently. Many small images consume a lot of storage in the end, especially since the content will not be deleted.

If you make your instance open, like most, then people can create communities as much as they want, with content that they want. So you don’t have much influence on how many content is being stored on your instance.

Seems to work (took an mp4 here)

You can’t. You should reach out to the mods/admins on the other instance.

You can compare it with e-mail.
When you get an angry mail from company B while you work at company A, there’s not much somebody at company A can do about it, except blocking the mails from company B.

If it’s a very problematic instance the admins can choose to block federation between their instance and the other instance.

Lemmings ? :P