Chilli Monster is right, This has been going on for a long time and has nothing to do with instructing in foreign reged aircraft.
It's all about removing foreign reged aircraft from the UK.
The instructing side of things is a different matter. Porridge mentioned that it doesn't matter as long as the instructor is JAA and FAA rated. It does. It's not the instructors licence it's the aircraft they are in. If they are in a N-reg and instructing in UK airspace then unless the aircraft and student has a DfT waiver form they are instructing illegally in UK airspace no matter what licence they have.
AOPA are on the case with the DfT regarding the removal of the aircraft. If you read the General Aviation magazine for Aug 2005 they talk about a scheme for keeping them here and helping with safety information and distribution of it.