If a bunch of nazis want to run a server and post racist shit all day we can’t stop them. But we can (and should) defederate from them. They can have their own private island.

And what if they post racist shit all day on their own instance but also post normal and helpful stuff on communities of other instances? Just don't visit their communities, that's it. No need to block potentially helpful posts of members of that instance everywhere.
The same thing when there's a NSFW and your own instance doesn't want to see NSFW stuff. That's fine but it's not like the users of that NSFW instance are running around posting porn on every other community.

If some of them do, block the users. But there's no reason defederating the whole instance because those users can and do also participate just fine in other topics that have nothing to do with NSFW or nazi stuff.

For example why should a programmer that has a nazi instance as his home not be allowed to post memes in a community about programming humour from a regular instance, when he doesn't post anything there that is in any way related to him being a nazi?