This current behaviour does make the most sense to me.
Can you elaborate? If you block a whole instance but then specifically subscribe to community X on that instance, what would the point be to subscribing to a community on an instance you block other than to have exceptional visibility on that community?
What do you get by subscribing to a community on a blocked instance under the current implementation?
You would be able to set a full instance block on the instance that works exactly as it does today,
To be clear, there is no such thing as a full instance block w/the stock client. E.g. when you block an instance public comments from that instance are still displayed. Just not DMs and community timelines (even when subscribed). So the devs have selected /some/ content to still be visible from blocked instances, and it defies intuition.