I think these changes sound amazing. I have always carried around a bag full of instruments, and except in rare situations, I never use them at all. In addition to losing your melee dps while the instrument is held, you lose all melee for 12 seconds or so after your weapons are re-equipped. That is just too much of a tradeoff in most cases. Changing instruments to one handed would help offset that. The change to the Instrument Mastery AA also sounds great! This would help balance out the mez spells if using a flute for Dreams of Marlow. It would add a big reason to equip an instrument for resistant bosses, and generally just make that AA a lot better. These two changes alone would probably make many bards use their instruments a lot more!
Some of the ideas later in the thread are also exciting, although probably harder to implement. Probably my favorite idea was the standardized procs on instruments. The only issue I see with this is that on raids and in groups I mostly only use Singing, Wind, Percussion, and sometimes Stringed. So that is realistically only two instrument procs available in most situations. But if you also added more songs, or as Reehs suggested, change around the instrument type on existing songs this might work out better. However, that would be a pretty huge change to songs overall.
I also liked the idea of changing a song based on instrument type being wielded. That could have a lot of applications. Murk song, as pointed out would be a lot better with changing resist types. Another song for this type of treatment might be Occlusion of Sound. It could debufff a different single resist based on instrument type, and work as it does not with no instrument. This is a good song at lower levels, but once you get Relic Chant you cannot really make use of it anymore. The only time I ever use that song now is when Relic Chant won't land.
Would it be possible to add a true instrument for the Singing skill? Many important songs are of the Singing type and there are of course no "microphones" in the game. I am not sure what kind of fantasy answer there is but maybe some kind of clockwork megaphone! I have always thought
Wand of the Chosen looks like a pretty decent microphone. Or perhaps some kind of tuning fork, to make sure you stay on pitch. Maybe to balance how many songs are singing it could be a primary slot item, while other instruments remain secondary.
The changes you suggested for Hymn of the Savior sound good. The way you described it sounds as if DoT heals would be a bit weak compared to DD heals. I know necros can stack up a lot of dps with their DoT damage. Would it be possible for the heal to scale based on DoT damage? So that four powerful DoTs would heal more than four weak ones? Also my only concern would be that this takes away the only way bards can cure poison and disease. Would it be possible to replace the cure components to Psalm of Vitality and Psalm of Purity? They were only one counter each, but it would be nice to retain the ability to cure diseases and poisons in some way.
Thank you for considering these changes, it all sounds quite exciting!