Trouble for CAA is that they know less about the rules than most pilots. E.g. I remember an airport users meeting (not NZAR) a few years ago where we had to inform the CAA regional safety officer about some bits of Part 91 that he was ignorant of.
Of course instructors need to be sensible with regard to how the public may perceive FLWOP but most people complaining do not know whether an aircraft is at 100ft or 800ft. I think the rules have always been very clear that it is a Bona Fide reason and CAA's clarification of CAR 91.311(c) only occured because they were so cleary wrong in the case of the 2004 instructors. The other option available to instructors is that provided the FLWOP is commenced below 1000ft (for me 999ft) you can fly as low as is required for the exercise as it is a simulated engine failure AFTER take-off. Now as to where the FLWOP commences-well that is open to interpretation.