When I was a kid, I only knew grown-ups by their last names, unless they were family and therefore had a title, like Aunt or Uncle. It was always very clear who was in charge and who wasn't. At my daughter's pre-school (which is a completely awesome
Montessori
school!), the teachers are called "Miss Carol," "Mr. Dave," etc. I find that is a common practice these days.
Now, since I adore my daughter's school, I am not going to question the reasoning behind their titles. It's their system and I follow their rules without hesitation (such a good doobie, I know).
In martial arts academies, however, I believe there should be a different kind of verbal connection. There is a need for some distance between the instructors and the students. And truthfully, the difficulty is not with the children in the classes, it's with the adults.