Wow, great to hear about everyone's experiences!
Bruce, I like what you said about students needing to understand WHY they are doing something. That's why I tend to get students playing songs right away, in the very first lesson, with a one-chord song. And from there, almost all my teaching is done through using songs to learn new techniques. I find learning songs motivates students a lot more than practicing exercises.
If I give students an exercise, it's always something that directly applies to a song they are learning. And I don't get into much theory at all until students start to ask me about it, or until I feel like it would help them to know some basic chord theory.
Mark, you mentioned that it's harder to attract students in this economy. Are others having that problem? I haven't noticed it yet. Anybody have any tips for attracting students?