I've heard that for large instances the performance hit can be significant -- it makes caching much harder (or maybe disables it completely). Also, it turns off "post forwarding" (whatever that is) which apparently makes the "missing replies" problem (where you only see part of a conversation due to federation weirdnesses) worse; Byron told me this was an issue on Univeseodon when he tried enabling auth-fetch. I'm not sure about the details of the incompatibiliies, I remember somebody (maybe @hrefna ?) metnioning that Mastodon uses an old draft version of the HTTP signature spec so maybe it has something to do with that.