IFR PA28 ON ATC VECTORS; EXPERIENCED NMAC WITH PA28 CONDUCTING PRACTICE MANEUVERS ENRTE TO CMI.

Narrative

MY STUDENT AND I WERE ON AN IFR TRAINING FLT FROM CMI-MTO. THE OTHER ACFT WAS ON A TRAINING FLT FOR A CFI CANDIDATE PERFORMING LAZY 8'S. WE HAD JUST BEEN TAKEN OFF OF THE VICTOR AIRWAY FOR VECTORS TO THE MTO GPS RWY 24. AS MY STUDENT WAS SETTING UP FOR THE GPS APCH; HE HAD A QUESTION. I DIVERTED MY ATTN FROM SCANNING FOR TFC TO HELPING HIM. A FEW SECONDS LATER; WHEN APCH KEYED UP TO TALK TO ANOTHER TRAINING ACFT AND ISSUED A HOLDING CLRNC; I HEARD THE COLLISION WARNING ALARM BEGIN SOUNDING IN THE BACKGND. I LOOKED UP AND ANOTHER TRAINING ACFT (ACFT #2) WAS APCHING HEAD-ON AT MY 1 O'CLOCK POS. QUICKLY REALIZING THAT WE WERE ON A COLLISION COURSE; I TOOK THE CTLS AND TOOK EVASIVE ACTION. THERE WERE A FEW WAYS IN WHICH THIS COULD HAVE BEEN AVOIDED: 1) I SHOULD HAVE KEPT MORE ATTN ON COLLISION AVOIDANCE. 2) VFR TRAINING MANEUVERS SHOULD NOT HAVE BEEN CONDUCTED AT THE SAME ALT AS OTHER IFR TFC. 3) ATC SHOULD HAVE GIVEN A TA INSTEAD OF GETTING CAUGHT UP IN ISSUING HOLDING CLRNCS AND TFC SEQUENCING TO OTHER ACFT -- SHOULD HAVE PRIORITIZED BETTER.