System Information
Operating system: Windows-10-10.0.19041-SP0 64 Bits
Graphics card: Radeon RX 570 Series ATI Technologies Inc. 4.5.14761 Core Profile Context 21.10.2 30.0.13025.5005

Blender Version
Broken: version: 3.0.0 Alpha, branch: master, commit date: 2021-10-05 22:29, hash: rB26dac33ce18f
Worked: (newest version of Blender that worked as expected)

Short description of error
Hey guys! Here is visual representation of problem
https://i.imgur.com/0Cufcl4.mp4
As you can see, instance can't handle materials that point onto mesh. Or better to say that it do it incorrect. I have discussion with my friend. Who is more know in blender than I am, and he told me some sort that "instance is shoud not do this at all" so after that I have long time doubts... but then decided a) that, if materials is represent correct, why it should not? b) material have as pointer - specific object A where something will be progected on mesh... BUT! this object is original "pointer" but in inctance for this material it should be Instance copy. Isn't that right? Or I'm wrong?
So to summury - core of the problem that instance can't do correct copy of material (that have used as projection - some object that will be )
I don't know is it bug or not.. but I feel that probably it should have own local coordinate point for instance object for material that will attached to copy of pointer (because of logic of instancing). Or.. if I wrong, how at all it possible to do??? Don't understand. Because it's a little bit controversial. At one hand it do correct because it have only 1 original object as linked to coordinate in materials, but other hand, instance should do proper copy of material, and it have own copy of same object, so and material should link to it's own copy. And it's create in my head dissonance.

Exact steps for others to reproduce the error

1. Open the
   FILE.7z117 KBDownload
2. In 'Shader tab', in the 'Image texture node' choose any small. png file
3. Then select pointer-dummy and start move it here and there (you will see that texture will applyes to only that place where you point, but there are only 1 texture, but should be few)