Considering that this new feature in 7.5 really blurred the lines between rack instruments and instrument tracks, what is the real difference between them? Can we ‘convert’ one into the other?
Strange isn’t it? Add a track and it puts an instrument into the rack, add a rack and it adds a track lol
In fact, I use it as I used the Instrument Track earlier, the difference is, now I have multiple audio outputs and multiple midi inputs - and I can handle it all from the Project window. I almost never open the Instrument Rack (F11). Very cool!
I don’t see any difference. It’s all the same now, IMHO SB kept the instrument rack only for backward compatibility of previous projects 
For what is worth I’d always used the rack and felt that instrument tracks were of little use to me with my instruments of choice. With the the new changes I find it sooooo much easier to just use an instrument track now. It’s so much cleaner as mentioned with the automation lanes and such. It even unloads the instrument if I remove the track. The rack (at least then) requires manual unloading of the instrument even after deleting the track. A small thing i know but when done several times in an hour or so it really makes for a nice feature.
A little dissapointed with this ‘‘new’’ feature…
I will still use rack instruments for multi timbral vtis like Kontakt,Omnisphere,HalionSonic SE.
And instrument tracks for 2-3 solo vstis like Pianoteq,Waves Elements.
No difference,i expected something more here
I think that the difference, now, is choice.
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You can have a neat rack (if that is how you prefer to view your instruments) and control those devices via MIDI tracks.
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You can have neat instrument tracks, tied to specific instruments, with the ability to point other MIDI tracks to those specific instrument tracks.
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Optionally, either scenario can be viewed the other way. Plus, the new rack windows allow some extra features (quick controls).
If I were to use a multi-timbre device I would, without hesitation, put it in the rack. I don’t fancy having some arbitrary track (in the middle of other tracks someplace) being webbed with other tracks. Maybe if I were to plop them all into a folder track, that would be fine I suppose.
In other words, for me, I would rather have a device with sixteen MIDI tracks pointing to it, rather than fifteen MIDI tracks pointing to a sixteenth instrument track. Though anymore, I more often than not, just create another instance of the instrument instead. But I can certainly understand the need to use a multi-timbre instrument. Some are even made better, used that way.
I think that, if one cannot appreciate the merge and the separate nature of the two, it’s probably more because of lack of inexperience over time. In the past (long ago in a far away land) it was generally more convenient (e.g. in terms of space and MIDI connectivity) and certainly economical to have fewer multi-timbre devices rather than more single devices. With such scenarios it was very common, even unavoidable to be forced (and I am not saying that on a bad note) into the experience. Old habits die hard, and for some, that way even fits them better.
There is no right and wrong, in my opinion, what works for person A, doesn’t necessarily work for person B. A says “this is much simpler”, yet B says the same thing of the opposite. It’s natural experience to try, and appreciate different situations. The more suitable situation typically persist for longer periods of time. This very natural process is also known as evolution. 
Not to start another heated discussion over off-topic stuff, but this is the reason why we bicker and war. Stupid people with dogmas that they just cannot leave to themselves, but it has to be pushed on others, because they know best. E.g. if you look at history, one can then understand why some countries had clever people including a separation of church and state into their most basic and guiding documents. Those people got it. Opinion is not a fact.
So back to instrument (t)racks… 
I think the difference then, comes down to choice, the way you like to view or arrange (and even edit) music, your way. Steinberg has been in the business a long time and have that experience and can (obviously) see the need for both. However, there is one very distinct difference (like described above, 16 MIDI tracks to 1 VST versus 15 MIDI tracks to 1 Instrument Track). The new rack just makes that one Instrument Track appear the same in the rack, or does it? E.g. can you remove just the VST instrument of that one Instrument Track from the rack?
I’m just happy that I can finally select a multi-output vsti like superior drummer with all of my eq’s and comps, export the selected tracks and import them into other sessions. If I wanted to do that with pre 7.5 I had to open a new instance in each session, activate the outputs, label them, load the FX , group and load the selected channel settings.