Fundamentally, you're both teaching by example and the code is simple, so that the results have a clear correlation to it.
It seems to be an aesthetic choice as to whether you teach concepts outright and make it communicable with proper rhetoric or illustrate concepts by highlighting their use in a simple application. It's like two guitar instructors. One stresses etudes and practices alongside songs and another stresses songs alongside etudes and practices. I can't see either way hurting a student. Whatever the choice, you're packaging this information in a way that makes it digestible to those who want to learn how to program (either the way of rhetoric or application).
I would like to say this though, at least you guys are not teaching Java by programming within the Eclipse IDE, which isn't ment for beginners.