This has been the dynamic on Mastodon for years now, and I don’t think it is really a problem. Framing the problem itself as “free speech” vs. “censorship” itself is often used as a fascist canard when it is really a matter of the freedom of association. Communities choose who to associate with and who not to associate with. Moderation, to prevent harassment and abuse, to keep the discussion on topic, to remove illegal content, is a very NORMAL thing. It starts with small tools like temp-bans from communities, and increases in scale to permanent bans from instances, or de-federation if an instance proves to be a continuous torrent of abuse.

There are a lot of cases of genuine censorship which take place on commercial platforms like Twitter, Facebook, and Reddit, but these “free speech extremists” are always more concerned about whether or not they can use slurs and spew blood libel than they are about what happened to r/BlueLeaks.

Or is it usual for people to run instances from their homes using common ISP subscriber variable IP addresses?

No. That that would be absolutely ridiculous for anything beyond an ephemeral CounterStrike server.

They could, but they will develop a very poor reputation if they do this for frivolous reasons.

let them fight

Coming up on 30 years!