Some very interesting points, Pringle. Here are my thoughts...
1. If my experience us anything to go by, there is a desperate and worsening shortage of flight instructors at present. My school's training programme is entirely limited by the number of instructor hours it can procure. So I think that the supply/demand situation for FIs will remain favourable to the FI community.
2. I have no problem with a relevant theory exam, though in my opinion that should form part of the FI training, not be, as at present, an entry qualification. Central examinations would be no problem provided central doesn't mean only twice a year at Gatwick! For those of us who live up north, that's an immediate increase in cost of several hundred quid and a quite unnecessary inconvenience. To be honest, given that relatively few schools do the FI training courses, I can't really see why they should be deemed incapable of administering the theory exam given that they are approved to do the flight training.
3. Hours. I would suggest a minimum of 300 hours (200 PIC) for all candidates. I guess the entrance test flight could be retained to weed out those that have managed to fail to meet the input standard by that time.
4. Yes, the basic PPL FI should only instruct ab initio. If he has an IMC rating then he could do a further FI (IMC) course to qualify him to instruct that (actually, I am amazed that this isn't already a requirement!). Ditto Night.
5. Money. Always a trick question! To avoid the school attempting to discount, or pocket the difference, all ab initio payment should be at the same rate. Obviously advanced training (IMC, Night, IR, whatever) could command a premium and for the most part your average PPL FI isn't going to go there. If he does, then he deserves the money.
6. I don't understand your point about ex. airline pilots coming in and spoiling your fun. Surely they can do that right now - they already have all the paper qualifications and merely need to do the FI course.