This is roughly paraphrased from the Mahayana Buddhist tradition of how to identify a spiritual teacher, but I think just about everything in it translates to martial arts.
1) Proper Ethical Behavior: Is not involved in questionable, illegal, or immoral activities.
2) At Peace: The teacher is focused, not at odds with herself, not trying to prove anything.
3) Not Egotistical: The teacher is not absorbed in himself or his self image.
4) Having Love/Compassion As Main Motivation To Teach: The teacher does not teach out of a desire for fame, money, or ego. The teacher is teaching out of a desire to help the studetns, and she does not need anything (e.g. companionship, competition, acceptance, friendship, etc) from the students.
5) Knows the Nature of the Fighting Mind, at least Intellectually. She understands meditation, mushin, visualizatoin, or how to get into the The Zone.
6) Energetic in Teaching. The teacher is tireless in teaching and perseveres with joy under difficult circumstances. In other words, he does not hate teaching.
7) Posesses a Wealth of Knowledge, not only about her own art but other arts.
8) Exceeds Your Skills. Quite simply, the teacher is better than you.
9) Skilled Teacher. The teacher is good at communicating effectively, verbally and non-verbally, to her students.
10) Beyond Giving Up. The teacher doesn't get disappointed at the failures of the student, and does not ever give up on them.
If you are a student and your teacher has at least 5 of the above qualities, then you have a pretty good teacher. If you are a teacher, then you should strive to attain as many of these qualities as you can.