The evil seminar sensei is exactly right, but for all the wrong reasons.
No, he's wrong, for all the wrong reasons. Your argument about training for "real life" is invalid if your training isn't exactly what you'd do in a self-defense situation, and allowing someone to tap out if you're in a self-defense situation is stupid. If you (and he) really believe that human beings are incapable of behaving in any way different in "real life" than in training, then you shouldn't let someone tap out in training, either -- with predictable results, and a sharp lesson in human stupidity. As the saying goes, if you can't be a good example, you'll just have to be a horrible reminder.