Our system has Novice, Intermediate, and Advanced ranks for for each Dan level. Testing is done every 6 months until 3rd Dan, then every 12 months. New curriculum is added at each level so there is always something to learn and work on.
Sounds like a normal reaction to me. Some kids will be watchers and should be encouraged by the instructors to participate by choice until they gain confidence. Pretty soon they'll be jumping right in like they own the place!
Most systems that use colored belts/sashes start off at white belt and students progress through the colors as they learn the requirements. Black belt usually represents a student that has become proficient in the basics of the system.
Bushido man is right. Professionalism is a must when running a karate school. Your instructor is not fulfilling the service you are paying for nor is he being a good role model-another quality of a good instructor. You should check out the other school and look at the positive comparisons, not the negative-such as being there to teach class... .
There is way too much emphasis these days on making sure everyone is happy! Sometimes we have to do things because we made a comittment and it is our responsibility to follow through. Kids need to learn this and parents need to be consistent! I agree that it is unfortunate to turn a kid off to the marital arts by forcing the issue but you also don't want to set a precident of quitting before the job is done. Also, kids (and some adults) do not know how to self-motivate and need others to teach them. Rant over.
When done properly walking stance is very stable and is similar to the rooted stance taught in Japanese arts-quite a bit of power can be generated if needed. I agree that it looks very relaxed/casual and lower belt levels can look off-balance and soft but just like any other technique it must be practiced and may take several years to "learn properly". When I switched TKD affiliations 5 years ago I was introduced to this stance and found it challenging.