Just listening to this episode, and there seems to be a bit of confusion as to whether the people inside The Matrix are in it together (as opposed to each having their own "instance" if it).
It's pretty clear that they are all inhabiting the same place. If they were in their own separate Matrix then they would never be able to meet each other and carry over their interactions into the real world (as they certainly do in the movie). The Matrix was also made at a time when the internet was gaining mainstream popularity, which the movie is more than likely influenced by - riffing on that interconnectivity with ramped up technology (Second Life times a million).
The clip that gets played (the woman in red scene) does a pretty good job of explaining why the innocents they kill are necessary casualties. Most people not only wouldn't believe the reality of the situation (that they live in a simulation), but would actively fight against it. And on a pragmatic note, Neo is a prime candidate to be awoken and it takes a significant amount of time for that to happen - to have to go through that process for every police officer/security guard/military person whose job it is to follow orders and is actively fighting to stop the Team would be ridiculous and uncinematic to say the least.