An interesting discussion. I have to say that of the two best instructors I have been fortunate to fly with, one was civvy the other was ex-military.
They were totally different in style, but both were vastly experienced which is really the best measure of competence not background.
On the same vein, the two worst instructors I have worked with one was (current) military and the other civvy. The military pilot wasn't bothered about GA and had an ego the size of my overdraft, whilst the civvy was just an awful pilot and terrible communicator, who also had a massive ego and thought he was god's gift despite plenty of evidence to the contrary.
If I had a choice between a highly experienced civvy or ex military it would be quite a dilemma and would come down purely to personality, but if the FI was fairly inexperienced then the ex-mil chap would be a shoe in.