Basically, while SoI is active, unless you discard two cards matching the brigade of the EC being converted immediately to instead the convert, the convert becomes CBN.
This is correct; the order of operations in the original post doesn't demonstrate how instead works. Instead
immediately inserts itself and allows for a different effect to take place 'instead' of the original effect. So
at the moment the character would be converted (but before it actually completes), the owner may discard 2 matching cards from hand
instead and the convert does not happen.
This is true whether or not the convert targets a character in battle or in territory.
