There is a default model, defined in preferences.xml, that is displayed for any multiplayer model not in the user's fgdata:
<multiplay preserve="y">
<chat type="string" preserve="y">Hello</chat>
<transmission-freq-hz type="string">118500000</transmission-freq-hz>
<chat-display type="bool" userarchive="y">true</chat-display>
<chat-menu include="ATC/chat-menu-entries.xml"/>
<write-message-log type="bool">false</write-message-log>
<freeze-on-replay type="bool">true</freeze-on-replay>
<default-model type="string">Models/Geometry/glider.ac</default-model>
<callsign type="string" userarchive="y">callsign</callsign>
<selected-server type="string" userarchive="y"/>
</multiplay>
I'd guess people cannot see you because the glider, which is small, is being displayed. Maybe you can verify this on your two-instance system by replacing the default model in your preferences.xml with something larger. That won't help other people but then you can track down whick multiplyer models they are missing.