Nothing's changed.
As the last poster said, there's an AIC giving non-mandatory advice for instructors conducting these flights. Sounds like you might have come across an instructor who's taking the advice too literally and interpreting it as mandatory.
As far as pass/fail goes it's really unclear what, as an instructor, to do if the "student" is dangerous. It's true to say that since it's not a flight test the "student" can't fail but what should one do if the "student" isn't safe?
Luckily it's not been a problem for me so far because all of the "students" I've flown with either were fine or agreed with me that they needed a bit more instruction. However, I'm dreading the day when I consider that one of these "students" doesn't seem safe but doesn't agree with me. I'm willing to bet that, having signed the logbook, and following a subesquent fatal accident, a suitably expensive lawyer could, on behalf of the dead pilot's or dead passenger's estate, find a case with which to sue me.
The CAA don't tell me what to do in that circumstance and, strictly, the requirement to fly the hour with an instructor would have been met and, strictly, the "student" could insist that I sign the logbook to say that the flight took place.
If it ever happens, what I thought I'd do is say "OK - I'll sign your log book to say that the flight took place but I'll also add a note to the effect that your flying is not to a safe standard - do you really want me to do that?".
That would then effectively pass the buck onto the examiner responsible for signing the certificate and who could then refuse to sign it - although the examiner may be in a similar dilema.
I hope I never come across a student who's daft enough to make me put any of this to the test.