If you run the simple test I added you will most likely get a crash. Every invocation of DoInstanceCheck will return PyFalse, from this callstack:
Python.Runtime.dll!Python.Runtime.MetaType.DoInstanceCheck(System.IntPtr tp, System.IntPtr args, bool checkType) Line 281 C#
Python.Runtime.dll!Python.Runtime.MetaType.__instancecheck__(System.IntPtr tp, System.IntPtr args) Line 318 C#
[Native to Managed Transition]
python35.dll!PyCFunction_Call(_object * func, _object * args, _object * kwds) Line 145 C
python35.dll!PyObject_Call(_object * func, _object * arg, _object * kw) Line 2167 C
python35.dll!PyObject_CallFunctionObjArgs(_object * callable, ...) Line 2446 C
python35.dll!PyObject_IsInstance(_object * inst, _object * cls) Line 2640 C
python35.dll!builtin_isinstance(PyModuleDef * module, _object * args) Line 624 C
In Python 3.5.2 which I am running PyObject_IsInstance contains this code which decrements the reference count of the returned value
res = PyObject_CallFunctionObjArgs(checker, inst, NULL);
Py_LeaveRecursiveCall();
Py_DECREF(checker);
if (res != NULL) {
ok = PyObject_IsTrue(res);
Py_DECREF(res);
}
And if you run this often enough the reference count drops to zero and "False" get freed which almost immediately crashes my python interpreter.

@ArvidJB looks good to me and I confirmed that test this crashes the python interpreter - nice catch! Do you agree to MIT license once we transition? This code appears to be from @filmor, so we will let him review this.

Yep, looks a lot more correct than before, thanks for catching this :)

Great, thanks for the quick turnaround!
I agree with both the ZPL and the MIT license for this change (and potential future changes).