Yourself

Do occlusion culling. Do not render/update the objects that are not visible.

For example the inside when you are on the outside of the ship (and vice versa) isn't visible so shouldn't be rendered/updated. 

Also, if you are on the inside, only render the decks/objects that you can actually see.

Google a bit for different occlusion culling algorithms.

There is no magic bullet for this so compaire different solutions and pick the best for your situation.

Also ask yourself if you really have to move everything at any time. There is a reason you cannot do that in most (AAA) games.

You will need multiple elements inside the InputLayout describing the matrix (incrementing the SemanticIndex and AlignedByteOffset).

The DirectX SDK (june 2010) has a sample about instancing that uses this method ( inside the Direct3D10 folder, so minor changes might be needed to adapt it to Dx11)

normally no it doesn't impact performance at all (the shader compiler is very good in eliminating unused code/resources), but you will only be 100% sure if  you profile it

Replace the instance position inside VertexInputType by a matrix.

You could also use an array of matrices (inside constant buffer) and index it using SV_InstanceID.

this article explains it in more detail.

XInput is only for XBOX360 controllers, DirectInputfor should be able to take all devices.

See the wikipedia entry of DirectInput for a comparison between the two.

Though, I wouldn't use DirectInput. I recommend the RawInput API.