http://answers.yahoo.com/question/index;_ylt=AuEcCjDwmSPLRK5kkJsVTT48.Bd.;_ylv=3?qid=20101201141039AA9ZEac
I feel my answer to that is inextricably linked to your question, and should be the first round of weeding out potential instructors.
Now... Part of it is luck – Like finding a needle in a haystack, you're not going to know it until you come in contact with it. Good instructors are such because they mesh well with their students. You can know the art inside and out, but unless you can find a way to reach your students as an instructor, you're not going to be worth a damn. I've known instructors who've taught for 30 years that just couldn't connect with me, and I learned nothing from them because of it. Then there are times that I caught myself thinking I knew better, and was refusing to learn (this is a huge trap for martial artists, whether they admit to it or not – there's a reason for the overflowing teacup parable).
Look first into the organization – does he meet the minimum requirements. There are usually standards to teach. If he meets those, then move onto the next criteria, and to do that, make use of the free lesson that most instructors offer.
Does his movement match your understanding of the art? You can use youtube or other video sources, but you have to look through a lot of videos of different practitioners to find the mean, the midpoint. Compare him to that. If he deviates, can you see why?
If that is acceptable, finally, determine if you get along with the classmates and the instructor. You're going to be in extremely close proximity to these people, so you want to get along. Does the way the instructor conducts the class sit well with you?
Experience is good, especially if they have experience applying the art. If you're learning a self-defense art, but they've only done point sparring, leave. If you're learning a sport martial art, then self-defense applications aren't applicable. Know what you're looking for.
Give yourself time to try it out, and, if worse comes to worse, transfer. But always always always listen to your gut – it'll tell you what you need to know.