Are there any issues or gotchas to be aware of when turning on Payment Instruments? Our payment provider is suggesting this for a specific functionality. I was interested to know if it might cause any headaches or problems for us.

We had issues when we tried turning Payment Instruments on ~7 months ago, though we haven't tried since so perhaps they've since been fixed. Our specific issues were related to MerchantE (our provider) and charging on Customer Deposits tied to Sales Orders with discount items on them (or perhaps any item with a negative amount). Not sure if any of those things apply to your use-case, but something to keep an eye out for at least.

Fortunately we don’t use sales orders, so we might be okay.It is our payment processor (Solupay) that is recommending this, so I hope we can trust their judgement.

Yeah, the issue we were running into was after the charge data was passed to MerchantE so another provider should be fine.