Whirlybird, yes, that's how I was taught, too.
I was lucky enough to have a variety of instructors, who all emphasised lookout. Additionally, they advocated thinking through a 'plan' and 'elevation' of what was going on, with my aircraft inside that view. In other words, to build up a 3D mental view of what was going on.
This has proved invaluable. It has, as a discipline, to be practiced on the ground first. However, it becomes second nature and really helps in all manner of ways: traffic visualisation, circuit recognition, approaches, entering and leaving the hold, etc..
No doubt its what has at some stage to be learnt by us all - but in my view there's no harm and every advantage in encouraging students to do it as soon as possible.