Perfectly legal for a PPL to be P1 in the RHS. Insurance, payment, benefit in kind issues public/private cat issues etc are the usual entirely separate can of worms.
I think that this is absolutely right.
There is no legal reason I'm aware of why the pilot in command canot sit in either seat (unless the POH specifies something else - a Tiger Moth might be a good example of this?) but I have no idea what position the insurance company might take if there was an incident.
Try running it by your insurance company?