TL;DR: The current Mastodon-signup is only removing the confusion of users on first glance, because it either hides the server-choice altogether, or leaves them with a choice that is impossible to make at this point of their Mastodon-journey. Instead, it should introduce them to decentrality on a lower scale, with a handful of handpicked servers to choose from, such that the decision makes sense to them and shows them the merits and fun of the concept instead of scaring them away. Ideal would be to give them a sense of agency. Then, chances are higher that they consider migrating again in the future and eventually internalize it as a permanent option of the digital world.
That’s actually not a bad idea. I’m not on board with mining contacts, but I think there’s a simple, transparent way to do this that can actually be fun: a personality quiz. Sure, if someone knows what instance to join already, they can override this. But if they don’t, they get like five questions, and then they are matched to an instance.