I'm firmly of the opinion that one can't ever have too much theoretical knowledge of aviation related subjects to perform efficiently as a flying instructor. Agreed that one doesn't use a fraction of it on a day-to-day basis but, just occasionally, the student will ask a deep and penetrating question and it helps to be able to answer it.
As to PPL instructors, if they can achieve the required standard they will be a great asset to any FTO. A certain venerable gentleman, who was the doyen of FI examiners spent an entire career instructing on a PPL (and his theoretical knowledge was legendary).
If I have a discomfort about the well-being of the instructing trade it is wondering where the next generation of career instructors will come from. When I started in the late seventies an instructor with all the various teaching and examining credentials made a fairly modest salary but it was enough to service the mortgage on a reasonable home. Nowadays the financial rewards are still modest but the property values have raced ahead to the degree that only someone with independent means can realistically contemplate a career in instruction. Worrying.