I use that exact plan from that provider for @homegrown and it works absolutely fine, never seen any problems at all. I have over a thousand followers and none of them have reported any problems either.
I set up the account when I set up the website, so that I'd be experiencing managed hosting by using it myself.
I think the "low federation" refers to the number of processing threads. If you do lots of posts in a short time, it can overwhelm the thread capacity and take time for it to catch up with all the updates.
I've never run into problems with threads though.
It really depends on an individual's needs. If you need more threads, you can go for a higher priced plan, or chat about it with the person who runs the service.
The person who runs the service is really good about this, you can DM or email and they'll give a full explanation as well as offering options. These are small companies that offer the services, so it's much easier to reach people in charge.