TL;DR: The current Mastodon-signup is only removing the confusion of users on first glance, because it either hides the server-choice altogether, or leaves them with a choice that is impossible to make at this point of their Mastodon-journey. Instead, it should introduce them to decentrality on a lower scale, with a handful of handpicked servers to choose from, such that the decision makes sense to them and shows them the merits and fun of the concept instead of scaring them away. Ideal would be to give them a sense of agency. Then, chances are higher that they consider migrating again in the future and eventually internalize it as a permanent option of the digital world.
If you signup to social media it will pester you for your email contacts, location and hobbies/interests.
Building a signup wizard to use that information to select a instance would seemto be the best approach.
The contacts would let you know what instance most of your friends are located (e.g. look up email addresses).
Topic specific instance, can provide a hobby/interests selection section.
Lastly the location would let you choose a country specific general instance.
It would help push decentralisation but instead of providing choice your asking questions the user is used to being asked.