I have only done one - started at 300ft over the sea (as pointed out on a naturally aspirated engine density altitude effects it) - we selected zero thrust on the critical engine and I reduced speed - I had on full rudder , opposite aileron and the stick on the back stops with the stall warning going before I lost directional control.
Your instructor was very dumb or very brave!!!!!!!!
Back to the original question
Vmc is dictated by rudder authority and the amount of asymmetric thrust. For any given condition e.g. weight, C of G etc, rudder authority is determined by IAS. For a normally aspirated aircraft max thrust is determined by air density. Therefore on a normally aspirated aircraft as density decreases with altitude so will max thrust therefore Vmc will also decrease as less rudder auhority is needed to counter the asymmetric thrust.
I agree that Vmc needs to be done with caution by those that know what they are doing. It's not the Vnc demo that counts, it's knowing and carrying out the correct recovery technique that counts. A bit like stalling, are we teaching stalling or stall recovery technique?
When ever I teach Vmc recovery I block the rudder travel with my foot on the lazy (dead) engine side. This artificially raises Vmc abut also allows for further rudder travel if needed should the recovery be poorly executed.
From a training point of view it is irrelevant what IAS Vmc occurs at, it is the application of the correct recovery technique that counts.
One thing to remember is Vmc is calculated at the rear most C of G and at sea level. Most training aircraft at not being operated at anything like the rear most C of G or at sea level therefore on some aircraft the actual Vmc on the day may be quite close to the stall speed.