Re: live blades
In the style of Aikido I practice, Live Tanto Jiyu Wasa is a mandatory part of your Shodan (and Above grading). For 1st kyu it is a wooden Tanto Jiyu wasa.
With regard to the points made above. The first one I would say, is that when your Uke is coming at you with a REAL knife, it makes a huge difference to your attitude and drastically reduces the number of techniques you are prepared to do.
As far as practical application is concerned. I do believe there is a practical benefit to having to maintain your focus with a live blade. It is also useful for dealing with committed, but unskilled attacks.
I do not, however, believe it is necessarily hugely effective against a skilled knife practitioner, as with those individuals you are unlikely ever to see the knife.
I am therefore in the camp that there are real practical benefits for training with a live blade (which I hate), albeit benefits are limited.