"As the PIC on an instrument training flight in IMC, I may not be manipulating the controls for the whole thing, but I am still on instruments myself. If we exoanded the argument further using your logic BEagle, none of us should log any time when we are with a student, but we aren't actually flying the machine."
No - of course you log all the flight time of any instructional flight because, as the FI, you are PIC. You might consider yourself 'on instruments' but you are not controlling the aeroplane in the example you quote.
"At all times no matter what the conditions, we must be ready to take control, we are monitoring and keeping ourselves in the loop."
You are PIC. If you take control, you commence your own instrument flight time at that point. Do you expect the student to log it as well because he/she is watching you? Of course not.
"How would you define someone on a Cat 3 approach? Afterall, you aren't allowed to hand fly the thing under these conditions and yet you are solid IMC down to the deck, should you not log the IMC time?"
You are controlling the aeroplane through an interface device. In this situation it is the AFS FCU which you are physically handling rather than the control column. 'Hand flying' is irrelevant.
"Personally I think these arguments slightly spurious, since unless the CAA has an exact track of each flight and an exact copy of the weather at the time, who can actually judge whether you were IMC or not? People could claim for anything and there is no way of checking."
Quite so. Whilst flying is assessed by alleged experience rather than by competency-based assessment, there will always be people trying to cheat the system. Those who claim spurious IMC time are merely cheating themselves and their lack of real experience will eventually become obvious.