Using Multiple Firefox Profiles to Increase Security
Yes it would increase security, as (malicious) cross-domain information leaks aren’t possible between browser instances. You can also minimise the use of plug-ins and add-ons in high security browser environments, as they expose additional attackable surface.
Another way to mitigate the risk of malicious code running in your browser are ad blockers and NoScript-like add-ons. Chrome/Chromium allows you to disable script and plugin execution through its built-in domain-specific policy settings.
Separate browser instances will not protect against malware running on your computer. If an attacker successfully exploits a remote code execution vulnerability in one instance or gets you to run his code through social engineering, the resulting malware has access to all browser profiles/instances under the same user account (unless the malware manages to escalate its privileges).