Differentiation does not block out anything. It allows you to not RELY on positive or negative responses and reactions from people. Instead you can rely on yourself and your own self knowledge to feel good (or badly) about yourself. That DOES NOT mean that you are unaware of people's reactions and it certainly doesn't mean that you would choose to be around people that don't really like or respect you.
I must not be making myself clear in my comments because I don't believe I ever said that differentiation makes one unaware of other's feelings. I do understand too that it can make you more understanding of other's feelings, whether you choose to be empathic to that or not.
What I mean when I say differentiation allows you to block out negative emotions is that you prevent yourself from getting emotionally sucked into the other person's emotions, thereby blocking your own emotional involvement, thereby allowing you to more objectively see what is going on and understand what the other person is feeling. We really are on the same page here.
