Because what the user wants is to sign up on Lemmy. We have to meet them at exactly that point. When they click on "Sign up". And then our motive comes at play. We want to say to them »Hey stop, In case you don't know, the Fediverse works differently than other social media platforms you might be used to. You have to make a decision here.« And I think it's super effective to do it at that point. Doing it later is too late, because then they're already signed up on a random place without being informed. And doing it earlier is inconvenient. They might not be motivated to find out yet. Or it's a hassle to gather that info yourself without even knowing it's a thing.
And why is the way the Fediverse works looking bad? If it seems that way to you, you're might be wrong here. So even more reason to prominently display these kinds of things.
And it doesn't have to be complicated. As with software design in general, don't overwhelm the user with options. Just offer a description on what's happening and why. And give some sane default options. Don't make it more than let's say 5-10. And it's just one click more in the process. It's not too hard for the user to click once more if it's for a good cause. And if done right, they could just randomly click on something if in doubt.
I'd just make it like in my earlier proposal. Add the page. Force the user to choose. Either they want to answer a few questions and get a tailored instance. Or sign up at the current instance. Or sign up at one of the 4 other instances we promote for a better distribution. And then continue to ask for a username and password.