It's always a good one for microlight instructor tests: just where does it say what we can do!
Answer is not always simple, but it is there.
So microlight instructors are flying - for cash - legally.
ps. Light aircraft instructors - as long as they are not NPPL (SSEA) holders, which they won't be of course - can instruct on microlights without any conversion training.
Reason (in short): Your light aircraft licences are ICAO ones (except for the NPPL which is a UK one). There is no international definition of a microlight/ULM/ultraliegero/ultralight etc, so there is no way of excluding it from an international licence.
There is a UK definition of a microlight, so the CAA are able to exclude microlights from the UK NPPL (SSEA) and specifiy conversion/tests.
Having said that, I'd like to see a light aircraft pilot land a flexwing first time up!