can the instance even support federation with a multimillion user federation? Just look at the fedilags recently.
“The instance” from the question isn’t Meta’s, it’s sh.itjust.works, or any other “small” instance. Federation mostly works by mirroring a lot of data from instance A (i.e. Meta) into instance B (i.e. sh.itjust.works). If instance A broadcasts a lot of data, instance B might get overloaded.
Lower bandwidth for who? When images are cached on other instances, it allows two things: