Should starting content be instanced?
Most games say no, though that leads to over-crowding on launch day. Some games, like Age of Conan, do start off with the player in a small instance by themselves.
I actually think that starting content being instanced is a mistake for MMOs. I don't think you can make the assumption that people start playing by themselves. There are a lot of people who start by creating a character with a friend or family member. I think that it is a bad idea to separate them right at the start.
When I first started WoW, I started with a friend. We both created undead, and jumped right into the game together. That was a very attractive feature of the game.
Plus, the distinguishing feature of this genre is that you are playing with other people. I think it's important that right at the start you see other people running around. That's what makes it an MMO.
Even the crowds lend the game a certain "energy". People running around like crazy, chat channels going nuts. It might not be mechanically ideal, but I think crowded starting areas are important to the social ideal of this game.
I think there are things the designers could do to alleviate crowds. In particular, drop the tagging rules right from the start. Have mobs drop items for everyone involved in the kill, rather than only one person.
Tagging rules are primarily to prevent exploits, or prevent other people from stealing your loot or kill. Those situations don't really applies to the starting zones.