Short description of error
Instanced objects get their viewport display color ignored.
This is by design, as you can see in rB022ad416702d:
DRW: use object color from instancer Otherwise it's impossible to set the color of instanced library objects. Follows convention of instancer controlling draw options.
Exact steps for others to reproduce the error
My issues with the design
The original commit seems like a workaround for the fact that the override system is not implemented yet.
I find this too arbitrary and I would favour the flexibility of having a per-object granular viewport display object color instead (i.e., revert the mentioned commit).