Yes, attention can get too focused on the student. Earlier in my instructing I missed a rather important radio call while pattering a student through his first take-off roll. Fortunately I did not miss the police helicopter that had just been cleared through my climbout (by radar, not tower, hence the confusion), the cause of the call for me to abort the take off.
Since then my capacity has developed and I am a lot more attentive to some things than I ever was flying on my own. There are still some areas I can miss though, especially when I am talking!