Which, of course, using 'sensei' and 'onegai shimasu' isn't
.The decision of where to draw the line is pretty much arbitrary, and up to each school/organization to decide, I should think. Tongue-in-cheek though the suggestions above might be, calling one's chief instructor -chan could land one in an awkward spot. If 'san' is customary, 'san' should be used. It's that whole Rome and Romans thing, you know.
To be honest, the more comfortable I become with the Japanese language, the more amusing I find the use of Japanese terms in training. When discussing iaido I'll sometimes refer to my scabbard, and people will feel compelled to say 'you mean, your saya' before we can go on with our conversation (not to mention the times when an instructor says 'do saya-biki', instead of 'pull back your scabbard). It's almost like people think words they don't understand imbue the ob/subjects referenced with some kind of magic. And sometimes, it is difficult to keep from smiling when I hear another Russian or American interpretation of 'kote gaeshi' or 'ichi ni san shi'. But if that's the nomenclature used by the particular organization I'm training with, I, being in the position of a junior student, will go ahead and use it. Doing otherwise would be disrespectful of the organization and only hamper communication.
(Besides, all the Japanese does come in useful when you go visit dojos abroad. You don't want to have to figure out how to say 'Power Block #2, rear entry' or 'Secret transmission #15 from frontal kick' in Spanish, for instance!)