There are no instances anymore with this system, it’s the data hosting that’s decentralized, the front-end looks like a centralized website so you would go to Lemmy.com instead of whatever instance you signed up on.
Imagine Reddit but there’s no central authority and instead of using a service like AWS it’s just people providing storage space and bandwidth and they can decide not to host content from certain communities on their server, but from the user’s point of view they wouldn’t know where they’re pulling the data from.
So no, you couldn’t have two users with the same username. The user database could easily be shared by all storage providers or the database could be randomly split and you would have to mention what part of the database your info is stored on when logging in. When creating your account (where it checks for doubles on the whole username list hosted on all servers) you’re given a random third credential that you need to mention when logging in so the service knows which servers host that part of the user database (all info including the database would have triple redundancy).
Right now a website’s data might not be stored on a single server so that’s already how things work, the difference is that all the different servers are owned by the same company (like Amazon or Google). In the backend the servers communicate together to provide the data to the users so it feels like everything is hosted in the same place.
TL;DR: The best way to fix things is to make it work like it does for any other websites but to only decentralize the hosting instead of also decentralizing the communities.