import re

string = """
#Text which I want to keep intact
#Lots of text 
#Lots and lots of text 
#Lots and lots and lots of other text 

#Then in-between the file I have text in this format which I want to operate on:

ginstance 
{ 
 name ginstance_053D627B1349FA0BC57 
 node "FINDME" 
 inherit_xform on 
 visibility 255 
blah 
blah 
blah 
} 

ginstance 
{ 
 name ginstance_053D627B1349FA0BC57 
 node "DONTFINDME" 
 inherit_xform on 
 visibility 255 
blah 
blah 
blah 
}
"""

rx = re.compile("""
		ginstance\s*\{
		[^}]*
		(?:node\ "FINDME")
		[^}]*
		\}
		""", re.VERBOSE)
string = re.sub(rx, '', string)
print string