This functional consequence of defederation is telling their users they shouldn’t be allowed to interact with an instance.

Again, if lemmy.blahaj.zone's admin team have stated Threads has a transphobia problem (and they have) then I'm not going to tell them they're wrong (ignoring the fact that I agree with them) because, as admins, they've seen more than I have and if I'm on their instance I'm implicitly putting my trust in them. My trust has been well-placed, so far. If you do not trust your instance's admins to make decisions you find reasonable, find a new instance.

Moving servers is certainly a viable option, but it’s a pain and doesn’t transfer content

On one level I agree but that's the case with moving any social media without linking it and saying "This used to be mine, I don't maintain it anymore". I see no reason why federations (or "bubbles") in the fediverse should be held to a higher standard. I suppose I just can't relate because I don't particularly care much about the things I post and I'm only really in one place: here. In any case I can empathise with the fact moving instance is a pain but if your instance admins make decisions you don't like you should consider leaving it before you fall in to the Sunk Cost Fallacy and have even more posts you can't port over!

you can block instances.

A user blocking instances isn't the same as instances defederating. The difference between user-level blocking and instance-level defederation is that (1.) users need to see the offending content to be able to know to block it and (2.) I do not want bad-actors to see my content and want to put as many walls as possible up to stop them from seeing my content and interacting with me.

In either case this thread is about instances defederating from Threads. If moderators and admins notice their modlog or pending actions have a disproportionate amount of users misbehaving from a certain instance they might consider defederating until the instance can instill a more acceptable culture as it'll clear the queue up in future. Some communities and instances have already done this pre-emptively.

Your desire to have Threads blocked at the instance level is at odds with Katy’s desire to follow trans people on it.

Again, if an instance does not align with your values you can and probably should move instance. Maintaining an account on both two instances is as simple as having two different tabs. I would also advocate for improved tooling to transfer your content. The right to choose extends as far as your instance admins allow you the right to choose.