Instinct is incredibly random. It can show up very strongly in pups out of show lines or it can show up weakly in pups out of two working parents. I'm certain someone would've mentioned it by now. Unfortunately, no, it really doesn't mean anything. Perhaps the dog is demonstrating some instinct in his movements around the cats et al, perhaps not.
Most evaluators require the owner to sign a waiver before testing the dog.
If a sheep is bitten or scratched, the evaluator will generally tend to the injuries, you will not have to pay the value of the sheep, but you should offer to pay for medical care. It is important to note that a dog can cause a sheep's death without coming in contact with it. A sheep chased into a fence post can easily break a leg, shoulder or neck. If you don't know any herders, contact the chairman of your breed club's herding committee. Check in the AKC Events calendar for trials coming up in your area, attend and speak with some of the exhibitors, judges or stock handlers.