Would this not be similar to expecting an email to be deleted of everyones server when you delete it on your local server?

Honestly, I would find it more disturbing if I run a server/instance, and someone could delete something on my server/instance.

As for GDPR, I guess you would have to request the data to be deleted for every instance it got send to. I don't think it would be on the creator of the software/protocol to enable something like this for the entire fediverse (agian same as email). I'm not an expert however, so take this with a grain of salt.

I have a setup for option 3 almost exactly as you describe, using Wireguard to connect the servers to the vps and Nginx on the vps to redirect everything. I dont have any noticable latancy, although I do not run anything that relies on realtime interaction, so ymmv.

I host my stuff at home from a combination of old desktops, laptops and other leftovers. In addition I have a cheap vps which I use as a wireguard server which routes traffic to the different servers hosted at my home over wireguard. I also use this vps also to enable my parents to use the server from their home (also over wireguard).

An added benefit is that my ISP does not see that Im hosting anything, although I never had issues befoe this setup.

Factorio, just don't expect to have a life left...