I changed Indirect Lighting Smoothness, which did absolutely nothing. Note that all of the lighting in my scene is dynamic.
More importantly, I think that the difference with the normal data is the key to the solution. For some reason, normals are handled differently for instanced static meshes vs static meshes, when the objects are scaled.
Whether this is intentional or a bug in the engine, I don’t know.
I think the issue would be resolved if we focus on the normals. If you are having trouble reproducing the issue, I could send you a simple blueprint and mesh.