Mindy,
You asked for opinions regarding instructors dancing with students at socials. My bottom line: Is the instructor being paid for entertaining at the social? If so, he has a professional obligation to the students. However, if he is not being paid, he has the option of using the time to promote his instruction and "sell" lessons or to "play."
Obviously, like any dancer, he has the basic social obligation to not be a jerk. However, if he is not "on the clock," he can dance with whomever he pleases as often as he likes.