What a lot of debate over something quite simple! (apart from the aforementioned CAA cock-up)
The training flight is an easy thing. Most PPL's do the absolute bare minimum of hours to stay legal and it is them this is aimed at. Most "club" flyers turn up for a couple of weeks every couple of years simply because they are going to run out of time.
So an FI is having to do a fair bit of retraining and the 1 hr flight is part of that process of getting them back up to speed.
For a PPL who carries on flying all year round and has a good level of currency, then the flight should be about what is best for the PPL, however I always want to see a certain minimum standard in things like EFATO, PFL etc. If I know the PPL has covered this previously, then I don't mind doing other stuff, from IMC work to tailwheel brush ups. The question is always asked, "what do you want to do?" If it is just flying in a straight line. I always get suspicious, but if it is meticulously planned and flown, then great, but I'll always chuck a couple of curve balls in just as an added test.
BUT and for me this is a big one. If I am unhappy about the standard shown, then I will not sign to say the flight took place and if pushed I'll sign the book, but with a comment that the standard reached wasn't good enough. There then follows a quick call to all the local examiners to ensure that the licence is not signed off until the retraining has been completed.
Before everyone jumps into high horses over this, remember one thing. I'm not signing because that someone is a danger to themselves and others, not because of some powertrip on my part. They need retraining and I will do my best to ensure they realise that.
With some of the hideous egos I've come across (usually allied to very mediocre skills) you almost have to put a gun to someones head to make them realise they aren't safe.
If you aren't prepared to stick up for your beliefs as an FI, then frankly you shouldn't be in the job. Our role is to help keep up standards, most of the time that is easy as the majority of people are very sensible, but there are some real idiots out there who give PPL's a bad name.