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People who tell you not to use it honestly just want to wow you with their knowledge of bitcoins.
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I'd never tell someone not to use it. It is certainly fast and easy. I just point out that it is as safe as handing over your cash to a complete stranger and hoping that they are still there to give it back to you in the future when you ask for it.
I'm not sure what you mean by "just want to wow you with their knowledge of bitcoins", but perhaps those who encourage you to use such a service just want to mislead you with their lack of knowledge?
Sure, its probably not the safest place to save coins,
That's an understatement. https://blockchain.info/wallet can be accessed from any web browser, and only takes about 90 seconds to set up. It has many more useful features than InstaWallet and is far, Far, FAR more secure/safe.
but so long as you aren't keeping thousands of dollars in any accounts there you are fine.
More importantly:
As long as you aren't keeping more in InstaWallet than you'd be comfortable losing, you are fine. For some, that amount might be thousands of bitcoins. For others it might be 3 bitcoins.
If you really want to be safe though (And I've found keep yourself from spending your coins), print your own paper wallet at printcoins.com-its easy.
Depending on how you go about it, you are right, a paper wallet is typically far more secure. However, that is another extreme. As you've pointed out, a paper wallet makes it rather difficult to spend the bitcoins. Any wallet that allows you to retain control over your bitcoins and doesn't require you to turn that control over to someone else is significantly safer than InstaWallet, while still maintaining convenience. Some examples are:
MultiBit
Electrum
https://blockchain.info/walletBitcoin-Qt
Armory