Well, a friend and I were trying to farm Tree of Life for Swords and drops, when we got stuck on Nomoonaga. We fought the instance once, no problems. Zoned out, went to town, came back. We got all the way to Nomoonaga the 2nd time, fought him, but the quest log didn't clear the quest Question Of Faith. We both got the Dagger from the fight to stab into the Tree of Life, but we couldn't progress past that quest.
We tried zoning out completely a few times, still, as soon as we entered Question of Faith was in our quest logs, and Nomoonaga was NOT in his tower.
It takes a while for the instance you started to reset. If you go to town and come back before it resets, you pick up where you left off - Nomoonaga is already beaten, you have the dagger, just go stick it in the tree. This allows you to go get potions, recover from a computer error, etc. without losing your progress.
If you are out longer and the instance resets, you will not have the dagger, and will get to beat Nomoonaga again to obtain it.
Instances take a while to reset, so that you don't lose all progress if you die. If you want an instance to reset, either logging off or walking out the entrance (as opposed to warping out) will do it. If there are multiple players inside, you might need all of the players to do that to reset it.