Currently I'm not using SetVertexShader() and SetPixelShader(). I'm not sure if you need those when you are using the effect interface. Aren't these two functions called somewhere implicitly?

Apparently, I don't need "pD3dDevice_->SetFVF(simpleKnobMesh_.Mesh->GetFVF());" but removing it didn't solve the problem either.

Can you elaborate a bit on the last part? I'm not sure I understood the part with the internal reference count. Isn't it sufficient to call release() once at the end on the mesh?

In the hope you get the same erroneous behaviour: Use PIX ! When the debug layer doesn't give useful clues (I don't think the leaks are the culprit here) it's time to get a closer look at what actually happens. Compare it with the running version and maybe use a very simple mesh (e.g. cube) and only a couple of instances for a start.

As an aside: Not sure, but since instancing needs SM 3, try actually using vs_3_0 and ps_3_0 in your shaders.

PS: And please use code tags when posting code.