Or in other terms, not penalise a student if their string or wind instrument is cheap and cannot make as good a sound as a more expensive instrument?

Hard to say. Most beginners will be playing on less than ideal instruments anyway.

Son 3 did a sax exam on a sax which had got very cold in the boot and kept going out of tune as it warmed up in the exam. I thought the examiner was mean to comment on it when it was obviously not the way he was playing that was causing the tuning problem (he tuned it before each piece but it was going out of tune as he played). But they can only go on what they hear. I seem to remember that he did pretty well in that exam so it can't have had a huge effect.

Daughter once went into a Recorder exam and the examiner told her the instrument was flat. The mark she got was fair and I admit to thinking that she might have been failed due to the instrument.

I can't say whether the examiner took the quality of instrument into account or not.

Strangely I was thinking about this tonight, before I saw this thread, and asked daughter to try the Recorder again 2 years on. It's still flat even though we sent it to be revoiced.

Yes, more than I expected. Son has taken G5 and G8 on violin (different violins), and I'd always wondered whether it was really possible to factor in the instrument, given that bowing skills make such a difference to any instrument.

Examiner's comments on the G.8 were that perhaps the bow was too light at the tip - that was a very astute and also kindly comment. The bow was indeed too light for him (it had been bought when he was 15-20 cm shorter than when he took the exam), something he and his teacher had already noted. He was also rather weak and shaky at the exam as he'd been quite ill just beforehand, and obviously the examiner was wondering what was going on with his bowing.

I think it might be noted if an instrument is inferior, but it would be unfair if extra points are awarded for what might have been.

The reality is that as the grade goes up then so does the examiner's expectation of tone quality - and this must be fuelled by experience in that they will hear candidates at higher levels with superior instruments. Perhaps that's just how it is?

In the last session I had a few comments about lack of dynamics with piano pupils who are normally good at this - they reported the piano to be heavy and unresponsive. They didn't appear to get any extra marks for how they might have played had the piano been better.

That sounds like he was lucky to have a string specialist examiner.

Funny thing is, I don't think a stringed instrument was listed as his first instrument when I read the little "This is your examiner" blurb. But it's so long ago that I've forgotten...yikes!