I think part of the problem is as others have insinuated is that teaching flying is a commercial entity, and the risks of a student failing a medical and losing business because of this are far outweighed by the monetary benefits. Furthermore, I think most CFI's and schools for that matter, probably do not feel they are qualified to make those decisions. Finally, I would bet that the number of people that cannot pass the third class medical are quite small in comparison to the number that pass, and requiring someone to undergo a medical before flying may scare off some people who would otherwise get bit by the bug and then see the medical as something necessary. That being said, I do find it interesting that SCUBA has taken the exact opposite approach, and requires everyone who dives to have medical clearance by their phyisician(I realize its not the same as a AME certified class three medical) prior to training(at least it was when I took training in the early 80's and then recurrent training in the late 90's, and advanced training in the early 2000's).