I’d agree. Either have a “Register” link that leads you to a website explaining how to choose an instance and register there. Or maybe a drop-down menu with choices of instances and you can put in custom text if your instance isn’t amongst the defaults. That’s certainly not ideal as it prefers some instances over others, but maybe okay. Regardless, the onboarding process could be easier.
(And do away with the passwords, I think they’re an annoying concept and should go away for good in the future.)