I am kind of in between on this. On one hand, it is a particular user choice and it is certainly way better than admin-mandated domain-level blocking (which are very bad in my opinion). On the other hand, @irick concern’s are valid too, especially about the “unknown unknowns” of the network effect.
A bit about my perspective: I have participated in building network infrastructure, both wires, hardware and software. I believe that “network” is something different than “a product” or “a project”. Many Internet endeavors make this mistake, mixing the product-thing with a network-thing, mostly under the disguise of the “community”. So I might be biased towards the issues of building the network and keeping in running, as opposed to curating the actual information being sent over the wire.
From that point of view, I think that the proposal of user-controlled domain-level blocking (as well as some other content-curating initiatives) seem to make one unspoken assumption. It is the notion that the Mastodon instance is a meaningful thing. I am not sure about that and here is why:
Depending on the dynamic and the differences between the local and federated timelines, there are two directions the network may evolve:
- an IRC-like flat model - it does not matter where you are coming from (which server). Almost everything federates anyway. Local timeline is just a slower version of the global one, not much different in terms of content. The choice of the instance to attach is almost random. In the end, instances become just network nodes relaying messages, much like Tor or IRC.
- an instance camping model - the instances try to capture and describe their spirit and attract/distract certain kinds of audience. They can do it via the instance name, graphical, design, terms and conditions, subscription model, moderation level, free/paid etc. etc. In this model user’s attachment to the instance may be more though out. Instance camping doesn’t have to imply curated communities; some maybe very picky about membership, while other maybe openly inviting to break all rules. (Newsgroups example shows both schemes can live under one protocol in a federation).
I believe that the user-controller-domain-blocking (or any domain blocking, for that matter) makes sense and carries little negative impact in the second model, that one of instance camping. Being on an instance is actually meaningful, so blocking one (for example some open-everything-is-allowed instance) carries some weight.
But if flat model prevails, or at least majority of casual users live in a “I’d don’t care which instance I am on” world, this feature, although completely user-controlled, may exhibit adverse effects on the whole network. Something that - as I understand it - @irick warns us about. “We are not sure how this whole thing is going to develop (if anything at all), so let’s hold the horses a bit not to break that new-born thing”.
I don’t think we can safely predict which model will be the major mode of operation right now. My current bet is that the flat model may become more popular. As somebody occasionally using some funky instances but mainly living on mastodon.social, I experience local timeline on mastodon.social to be a slightly slower variant of a federated one, with a somewhat reduced ratio of a Japanese language. That’s it. Of course, toot.cafe perspective may be completely different. I also do not believe that users will make or want to make truly informed choices prior to signing up. You need to actually learn that thing a bit and try it out. By that time, you might have invested too much in your current identity to be persuaded to switch. (There are markets easily where customers are extremely loyal mostly because they are too lazy to ever bother switching). So you might be stuck with your fluffy domain for some time.
There is no “this instance only” toot distribution/reach setting currently, so it is harder to build a more inward community based on the instance public. Even if it were, I am not sure most users would bother to carefully switch between the fully federated and local instance models.
And I think it was not introduced for the purpose - other instances should always have a chance to federate, based only on individual (or bots’ ) decisions to remote follow.
There is one factor that could strengthen the instance camping behaviour: if instances based on non-Mastodon software would start to appear that offer some completely different mode of operation with the network. One could imagine that Wordpress blogs would automatically join the federation, and offering identity to the authors and the commenters (while accepting federated input as well). Or OStatus gateways to some very specific communities. Or instances running some special bots only. If the network will mostly run uniform software (or highly compatible software with a similar premise), it will tend to work like an IRC flat model. Software and use case diversity may strengthen camping.
For example, presidentielle.tech was the only one I was remotely considering suitable for domain-level blocking for me. An all-bot instance replicating things which mostly didn’t interest me, in the language I don’t know. In the end I have muted few very active candidates there, but I think I have found also one or two interesting tweet-toots that I wouldn’t have a chance to see; that makes me to side with a part of @Irick 's argument (that is also raised generally about various forms of filtering of Internet messages), that we will not have a chance to re-evaluate our choices and see how life looks like without a filter. Some people have experienced this when lifting their killfile for a moment on newsgroups; some might know the feeling once having their ad blocker disabled for a while 
On the other hand I was genuinely concerned about the chance that social.tchncs.de might get blocked by my instance. We even went as far as sending probe messages with some of my contacts to figure out “can you hear me?”. This is a very disconcerting symptom - an uneasy feeling that the connectivity is broken and unreliable. And we need to concentrate on checking the “signal level” in the conversation instead of just going with the flow.
Having written the above up, I find myself even less convinced if the instance camping will be a dominant model (although it will always exist to some extent). If that’s the case, then network-adverse effects of conversation blocking might (or might not) kick in, making at least part of @Irick’s concerns valid.
[details=little note on IRC]
Update As @cwebber@mastodon.social points out there are different IRC networks. Here I am referring to an operation of a single IRC networks. Different IRC networks are not federating to each other at all.
Some people on Mastodon disagreed with my comparisons of Mastodon to IRC or newsgroups. I will continue to make them until a useful comparative analysis will be done between older and new models of federated networking. But I am a frequent user of IRC to this day, on the other hand I have left newsgroups long time ago and without attachment.[/details]