I've had people call me "Master Paul." I've had people call me all kinds of titles that I haven't been given by a senior instructor.
When I teach, I am not concerned with rank or title, so when anyone calls me anything outside of "Paul" it makes me a bit uncomfortable, unless its a kid who calls me "Mr. Janulis." So I correct them not because I don't have the "right" to stake claims to any title I want; if I wanted to really market myself I could obtain and use any title I want...people do this all the time. I correct them because by doing so it makes a statement about who I am. It says that although I am the teacher, I treat others with equal respect, even if they are a student. It says that your rank or title is not what concerns me, its what you know and have to offer; and I don't want you to respect me because I have been in the martial arts for 19 years, or because I have obtained a title of some sort, I want to earn your respect through my skill, knowledge, and behavior.
That is why I correct them, and this is what is right for me.
Now others may go by the title that was given to them by their instructor. This is the most proper way to go. This isn't the only way, however.
Now, if it is a title that is very specific like Soke or Shihan or Datu, then this should only be given by an instructor. I had a new student who read only a little about Modern Arnis call refer to me by e-mail as "Datu Paul" and Jaye Spiro as "Datu Jaye," because he thought this was how you addressed seniors in the art. I nicely told him that this was not proper because Remy Presas only gave the Datu title to 6 people, and that although by definition I may be a "datu" or "cheiftan" of my own little "tribe" or class in Rochester, it is still not proper and could lead to much confusion.
However, a title that is very generic, like Guro, Sensei, or even Master or Grandmaster is much different in my opinion. If All my students and peers see me as "master" because they believe I have mastered something, then I guess that makes me a master. I don't think that this neccisarily has to be given by another instructor. I'll use the example of Grand Master Anciong Bacon, the founder of Balintawak Eskrima. He was never given a rank or title by any of his teachers, and he never gave out rank or titles. However, he is honored as a Grandmaster by his students and contemporaries.
So..its all about perception. Generic titles like master can be used if the students and contemporaries percieve that individual as a master. Other, more specific titles (which may depend on the system) should only be used if formally recieved.