

I.m.o., instances should never be allowed to ban anyone sitewide, even temporarily(, except for spamming/bot accounts), or only a minority of them, explicitly stating that they want to represent a group of users, and reserving themselves the right to say that a given user makes them a bad publicity.
And how would you ensure this type of policy is enforced, exactly? Lemmy is open-source software that can be modified by instance owners. Lemmy isn’t even the only Reddit-like software in the Fediverse.
Communities should also never be allowed to permaban, and a one-year ban should be the maximum, but only after, e.g., at least 3 one-month bans, themselves preceded with a demand to simply edit the comment/post.
See above.

I usually use subscribed and local, but I have notifications enabled for a bunch of feeds so I get new threads from those communities.
Note: I am on Piefed which has more options here.