All FI's in my club are at minimum CPL holder's. No PPL's.
Personally however, I see no problem with a PPL FI as long as they can be paid properly.
The FI rating should be a darn sight harder to get than it is currently and then we'll get people who actually want to be instructors, rather than those who are forced to and couldn't really give a monkey's.
We make the best of a bad situation by ensuring that our FI's are teaching for the right reasons, this means that they are more likely to give our customers value for money since they aren't under any pressure to do as much flying as possible and it means we have a very stable instructing team. In 18 months of operation we still have the same team (plus some new recruits) whereas the other local schools have seen at least 100% turnover in instructing staff in under a year!
I'm trying to achieve stability for my customers in this environment, anything else is secondary, but eventually we will have full time FI's at the club and hopefully we will be able to pay them a proper salary, but I won't bankrupt the club to do it. If you have a suggestion on how I'm "damaging" our industry by providing excellent instruction at a sensible cost (we are in no way cheap) and by giving our FI's a good hourly rate and ensuring that ALL monies from the students go direct to the Instructing staff rather than into someone's pocket, then let me know.
As I'm trying my best to drag this business kicking and screaming into the 20th century (let alone the 21st) for the good of everyone, not just the FI's and not just the students and PPL's and if you saw how much I get "paid" for the work I put in, then I'm certainly not doing it for the good of my bank account!
If you think the problems this industry faces are as simple as supporting full time instruction, then you've got some shocks coming.