IMHO, live blade exercise is just nuts. Only two kinds of people do this: those that have been cut, and those who are going to be cut. There is no upside to this. Enough adrenaline should be available without resorting to an additional element of risk. Not only this, but you'll have a hard enough time controlling yourself to the degree necessary for this type of activity. What about the person holding the knife? How much can you control him? Really want your life depending on him? Don't become a statistic...
This is exactly the reason why this is not a game. A responsible Sensei will choose very carefully the student who will be handling the weapon. It will always be a senior student, whom the instructor will trust for being able to stop the attack if uke is not executing his/her defense properly. The responsible Sensei also knows his students. He will manage to take time to brief Tori about his next "victim".
And finally, the blade will turn out not to be that sharp, anyway.