You need someone to be a good isntructor and you need that someone to have experience in type and/or line flying for those talents and qualification to be combined into the ideal instructor. Anything less is a compromise.
With experience on the airplane, I can relate my experiences to the student and teach the airplane with more credibility than someone who has never flown the airplane. As a student, I would prefer to have an experienced sim instructor teaching me. As an ex-airline chief pilot, company policy for that particular airline was to always have check airmen be the sim instructor, and I agreed with that policy. They didn't always do the best job as instructors, but then sometimes a good instructor is hard to find, regardless of his/her experience. All of them, though, had credibility and personal knowledge to impart because of their aircraft line experience. Personally, I feel that is an important factor for doing the job.