Fascinating reading!
It never occurred to me to switch-off Mode C (other than as part of a "flight") until I was told by a pilot (in my mchine) that he had been asked to do so over London (H4) at 1200ft by a controller terrified by his "sudden descent" on screen. Certainly livened up the day for that controller! Fault traced eventually to corrosion in the terminal connection to the transponder arial. In the process, I swapped to a Garmin 330 Mode S.
As to accuracy of the transponder, when the QNH is close to 1013 I can read the flight level against altimeter; I believe the 25' accuracy statement! I can in any case compare FL on the transponder with the altimeter, and then with the altitude shown on my Flymap 7. Allowing for pressure differences, not a bad check. I do this regularly to watch for drift in the altimeter.
Non-transponding aircraft?
Worst "offence" I saw was when heading into Redhill from the East under Gatwick's 1500ft limit at 1200ft, just North of the railway line. A Cessna came accross my path from South South East but curving around to eventually head North East over the town of Godstone at what I guess to have been no more than 200ft. At first I called it in on the radio, fearing he was in trouble, but eventually he climbed away towards Biggin. Caused excitement for ATC as this guy was invisible to their screens. Wonder why he had the transponder off!
Worst "non-offence" situation for me - gliders and microlites. No transponder might be legal and understandable (weight point made above), but you guys are much harder to see and as I am helicopter (tending to operate about 1,000 to 1,200 ft AGL) certainly we are operating in the same space. My only suggestion is to ask if you kit-out with a radio and talk to the LARS service? At least then I can hear your reports to get an idea where you are (and you can hear mine, too). Mostly those that I meet are not talking with the LARS unit.