Not sure if its still in the making but there was a proposal late last year (approx.) to help solve the diminishing number of A Cat (Grade 1) instructors over here. It worked along the lines of allowing an otherwise qualified A Cat instructor without a class 1 medical still go about instructing post PPL.
Im sure it would be more complicated than this but the outline for the idea looks like a good one to me.
I personally dont agree that all C Cat/Grade 3 instructors should carry a minimum number of hours (eg 500). As a young student I found it wasnt a problem having a low(ish) time instructor - Most can adequatley teach straight and level flying, medium turns etc without having thousands of hours - But to the idea of PPL's instructing others - I believe it would be a case of the blind leading the blind if I was to have done that as a fresh PPL.
Well thats my $0.02 worth anyway!