It can be done. The !sdf instance is installed on a subdirectory, and federation works just fine. The big disadvantage of doing so is that users have no #WebFinger account ID unless they manually set-up WebFinger on their domain, and this can be an issue when people are trying to mention remote users.
In this case, when @mcscx mentioned "@nanook@eskimo.com" -- this will not reach his StatusNet instance. StatusNet/GS only responds to WebFinger queries when they're installed on their own domain or subdomain. However, he CAN manually configure his domain to respond to WebFinger queries, so that @nanook@eskimo.com will work. Instructions are in the '/socialify-your-domain' directory of the current GNU social distribution.
As far as federation not working on his instance -- it looks like a configuration problem, the nature of which I am not at all sure about.