It should because you're not fading out the original instances persay, more the actual "newly spawned" particle object(s) and its' contained instances via the opacityPP.

Understand? If not let us know

Basicly, when you make the collision event, you now have a totaly new/separate set of instanced geometry.
It may be all coming from the same instanced object, but the new instances are separate from the original ones.

So you are not affecting the original instances with the opacityPP, just the new one(s) created by the collision event.