I teach the Kata that where taught to me the way they where taught. I simply say : do a down block here or this is called a crazy turn then do a high block, etc. Once a student reaches a certain level I have them perform the Kata against opponents. I then say ok I want to see a different application the form doing it as it has been taught, You tell the opponent what kick or punch to do then show me something different than what I first taught you .
This starts to open the students mind to what some of the applications may be yet dose not change the form in any manner.
During my Arnis BB test, myself and the other 3 that were testing with me, had to perform the anyo (form) of our choice. We had to do this just as you said, with people attacking. It was interesting to see the variations.