The instance seems to be mostly right wing trolls. I know defederating is unpopular but I don't think much is to be lost in this case and it can save the mods some headaches.
Edit: the response on exploding-heads.com to my reporting of transphobia. Courtesy of the "second in command"
That's also not what defederating is. Nobody's speech or ability to see speech is being restricted, since we are all free to set up accounts on other instances. Users are making a reasonable request to the instance owner for a normal moderation action that is in line with stated community standards and past defederation decisions (i.e., lemmygrad); the instance owner is free to honor it or not.
The basic question, which every fediverse instance has been having to deal with since inception, is how to draw the line on communities that willingly include bad actors. It has to be drawn somewhere, and where you draw it says a lot.
If you blocked everyone on that server, you'd never see them again.
If you de-defederate them then nobody here can see them and you've blocked everybody on that instance for everyone on this instance.
If you block them it doesn't affect what I can read and respond to. If you de-federate this instance from their instance then you are choosing who I can see and who I can read and who I can respond to.
From your point of view there is zero difference between them being de-federated and you blocking their users and communities. From my point of view there is a significant difference between them being de-federated and you blocking their users and communities.
If you were just worried about seeing what they write then you'd block them. If you run a community and are worried about their users posting in your community, you can set up a moderation script that blocks posts coming from their server.
You're trying to make choices that affect how other people on this instance interact with the entire Fediverse. It is not your role to decide what other users can read and respond to.
you can leave the instance if you don't like it; this allows you to access the rest of the fediverse; saying "you're blocked from the entire fediverse" is not a good reason to not defed because it's fundamentally not true