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Hi thanks for the bug report!
after looking at it, I'm afraid getting it to work on instanced objects is a bit out of the scope of the script :(
But to be honest i wrote this in 2008 and it's now a bit deprecated by newer versions of Maya - There's now an option in the Scale mode's Tool Settings to set it to align the manipulator to the 'average normal of selected components' - which is basically what this script is doing.
Firas Ershead
