It’s my understanding that this isn’t possible. Migrating domains in Lemmy is not supported though it is possible with some very hacky solutions like you’re describing. But the old domain needs to be retained indefinitely as a pointer to the new domain or it will break federation with other instances. If they lose control of the domain or can’t keep it basically forever then federation will break. They can potentially migrate users and posts, but it is effectively like resetting and starting over as a new instance.
Yes. It doesn’t outright kill an instance, but it’s definitely a major inconvenience and a learning opportunity.