What is meant by a "pressure system" in FAR 91.205?
EDIT:    With the additional information that the oil pressure gauge is "pegged", the CFI is correct in calling it un-serviceable.

It sounds like the A&amp;P has checked the engine oil pressure with another means and finds that the actual engine oil pressure reading is within limits. The A&amp;P then signs it off thinking that a correct gauge reading is not required. The A&amp;P is incorrect as a serviceable gauge is required as per FAR 91.205

Oil pressure gauges are required for engines with pressurized lubrication systems,  but not for engines with "splash" oiling. 

Older engine designs, and may of today's smaller engines (like lawn mowers), use a "splash" oiling system that does not supply oil under pressure to the bearing journals, or to other friction points in the engine. 

In a "splash" system, oil is applied to the cylinders and pistons by rotating dippers on the connecting-rod bearing caps. As they they rotate, the dippers pass through the oil pan and slash oil into the areas that require lubrication. 



If the oil pressure gauge in your "pressure system" is reading high, outside acceptable limits, it should be replaced. It is easy to confirm using another gauge. High oil pressure can also be caused using the wrong viscosity oil, incorrect pressure relief valve on the oil pump, or bearing clearances that are to tight. 

High (or low) oil pressure could cause an engine to fail. If the gauge was out of calibration, it would be impossible to tell what the actual pressure was. If you are accustomed to seeing high oil pressure, how could you possibly identify what was too high, or what was too low? 

I would not want to fly any aircraft with an inaccurate oil pressure gauge because it would rob you of valuable time to deal with an engine that might fail at any time.