The two instances are on a 6 node SQL Cluster.Are there more SQL Server instances in the Cluster or only these two instances for SCOM?
I'ts a little confusing on how to configure it but I get the general idea.Main idea is to have enough memory in one node that will be able to support all SQL Server instances in case of 5 nodes are down. I know, it's somehow impossible to happen but this is how it should work.
It would appear as thought we should allocate more memory?Yes. Unless you review the need for so many SQL Server instances or nodes. You can always try to reduce the number of instances (e.g. having only one for SCOM).
Keeping them separate was a best practice if I remember correctly but I guess if both instances are on the same SQL server that doesn't really improve performance?In separate servers, yes but being in the same server I don't see any advantage to have two instances.
SQL behavior is same as exchange servers, they occupy by default as much memory as the system has.
Nothing you can do about it.