I personally don't care much for "honorary" ranks/degrees in the way that Anne describes above -- one which is given to people who have not been through the entire process that others have undergone of attaining that rank. Oftentimes, it seems to me a sort of advertisement for the people who "give" them (which reminds me of the "Honorary Members" of the World Head of Family Sokeship Council
Steven Spielberg recently received his bachelor's degree
. His spokesman is quoted as saying, "I would say this meant more to Steven than the honorary doctorates because, after all, they are honors and they're very nice to have, but this (the degree) is something you achieve and you go back and do something your parents really wanted you to do."
As people have pointed out above, it's not the result of the rank that's important but its process. Personally, I wouldn't want to receive a rank in some art which I never studied, even if I could "excel" at it. I wouldn't want to receive a rank in the deadly art of FooBarBaz-do, even if I could whup every member in the art. Receiving such a rank to me would seem degrading to those who have gone through the process of training, understanding the precepts of the art, learning its history, and so on.
There are, of course, people who do go through the process but may not seem "deserving" as their physical manifestation in the art may be "lacking" to some people's eyes. But, as others have already pointed out (I feel like a broken record here), there are often other criteria other than athleticism that comes into play.
In any case, I think the problem here isn't the "rank" but the actions that the person took. I'm pretty sure that whether that person were an "honorary" 1st dan, a regular 3rd kyu, 80 years old, or 25 years old, the same actions probably would have repelled the new student away. Personally, I think it would be best to let the person know about the ex-student's comments so that he can understand and continue to grow...
PS: I agree with Jim, too: a dan ranking doesn't equate a teaching license...