Hey Dan,
Nice post.

2 questions for you.

This is in response to what you said above.
1) So in other words, if the student going for that rank, doesnt have a teacher that he can go to, then the student 'tests' in front of a panel of his own high ranking students, even if those students are not at the high rank themselves? Ex: Teacher is testing for 8th, doesnt have anyone to go to. His senior students, consisting of people ranking in the 5th, 6th area, test him.
This question seems to assume that the individual in question is not affiliated with any organization within the art in question, as organizational affiliation generally prevents such a scenario by its nature.
I have never heard of a panel of one's own students ranking their senior. If you run an independent school and are the head of it, I suppose that you can do whatever you want, though if people ask you who promoted you to your current rank and you tell them that your students did, be prepared for some hard questions. I think that by that point, the individual would likely have made enough connections over the years that he or she would know someone in the same art who would be willing to evaluate them and test them.
Of course, if you are independent and your students are happy with your classes and you are not taking classes from a higher ranking instructor yourself, why seek the rank?
2) Do you feel that age should come into play here? Ex: Student started training when he was 10. 30yrs would make him 40. Is 40 an ok age for a 7th or 8th?
Depends entirely upon the organization. Some organizations have minimum age requirements for certain dan grades. Others do not. Organizational stipulations aside, no, I don't think that it matters. A lot depends, however, on what your rank is representative of.
Usually, grades above fifth become increasingly about what one has put back
into the art, rather than what one has gotten
out of it. Time in grade is representative of 'years of service' at that point, but is not generally the only factor. Some orgs also have a physical test.
So long as requirements and promotions are consistent within an organization or independent school, the rest is relatively unimportant. My grade in kumdo through an independent organization is meaningless in the AUSKF, regardless of my age or years of service. And a hachidan in the AUSKF is meaningless if he or she goes into a Kukki taekwondo school. A paldan in Kukki taekwondo carries no weight at a Gracie Jiujitsu school. And so on.
But within the schools of the organzition that issued my kumdo rank,
http://www.koreankumdofederation.com/, my grade is recognized. Partly because of my time in grade. Partly because I know the hyung, hanbon kyorugi, and overall curriculum associated with the organiztion. Partly because I have taken all of the required tests for my current grade and have passed them. I'm not at such a lofty grade that my age of 43 would be an issue, but within our org, there are no ages associated with any of the grades, and GM Kim does not look particularly elderly. I have an instructor's certificate that is only of value with my parent org. I have it because I took the instructor's course and passed the test.
Rank is only meaningful within a given organization or school. Each organiztion or school attaches their own meaning to it. For some, rank represents skill. For others time in service. For others, responsibility. For others administrative roles. And any combination of those is used in any number of organiztions or schools.
Outside of that organization or school, one should not expect their rank to be recognized. If another school or organization is willing to recognize it, I'd consider it a bonus.
The only real issue with rank comes up when it is misused. The awarding of rank in order to justify another fee is a misuse. Rapid promoting of students to increase one's black belt count is a misuse. Shopping orgs for an easy 8th is a misuse. Falsification of credentials in order to obtain rank is a misuse. The common denomenator of these misuses is the use of rank to make money, either by making money from the awarding of rank or by unscrupulous attaining of rank in order to bolster one's portfolio so as to make money. Ego plays into it as well, but for the most part, I see greed as the driving factor.
Daniel