I've read through the comments of the thread and will use this post to comment from. I think the following apply:
-Having a happy player base is better than the opposite.
-Choice is generally a good thing.
-The idea of introducing PUG instances into the City offers more choice over less.
-If a challenge is what is being looked for, crushing PUGs is boring and only valued by pseudo-elites
-If a challenge is what is being looked for, then having instances where top tier guilds can go toe to toe should be embraced, not run from.
-There is already precedence with PUG scenarios.
-There is no harm in having some City instances that are PUG.
-PUG City instances could be an experiment. See if they are popular and thereby promote a happy player base.