I'm thinking along the same lines. Was your departure in any way delayed because the Pitts nipped in front? Was there any doubt in your, or the students mind, about the intentions of the Pitts? Was safety compromised because you had already started your take-off roll when he nipped in front? Was this a "heavy" Pitts that forced you to wait unexpectedly because of wake turbulence?
If not, then I'd say the Pitts did the right thing - optimize runway usage.
Student then announces 'lining up'.... We roll out onto the runway, and backtrack about 20m.
Nitpicking here, but shouldn't you have announced "backtracking" first? That way the Pitts maybe could've nipped in front of you even sooner. (I'm assuming that backtracking for a whopping 20m is somehow common practice for your training fleet, but that not all aircraft need that additional 20m for a safe take-off. So the information about whether you were going to line-up immediately, or do a backtrack and then line-up would be relevant for the Pitts.)
Many a time I have pulled up immediately after the aircraft ahead at the hold.
Same here. Fortunately we're blessed with wide taxiways (they need to be wide enough for 737s after all) so my call in those situations is typically "Ready for departure number two, able to pass".