If you are VFR in class g then my understanding is that you should not be being given seperation anyway as we seperate participating IFR not IFR vs VFR, and that (and i am ready to be corrected on this as i'm no expert) the controller by asking you to fly not above is ensuring more seperation than he requires (duty of care etc). my thinking is that all the controller is required to do is pass traffic info to both of you and let you maintain your own seperation, as your intentions are not guaranteed.
Regarding the having no obligation bit, as you have no mode c the controller is relying on you to maintain the bargain you made of not above such and such, and if you are no longer able or willing to stick to it then it would be a coutesy to tell him/her so that they can inform the other aircraft of your last known intentions.
A controller can only go on the info they are given.