I am with your Sensei on this one. Only by experiencing performing in front of others will you face that fear and learn how to deal with it. Nothing else will work- what sort of smaller steps do you think will work? Those other students are there to support you and help you grow as a MAist. they won't make fun of you if you make mistakes. And if they did, I am sure your Sensei would have a talk with them about poor attitude. You have passed several gradings, you need to lead by example to other students and get out there and perform. That is part of what comes with being a higher grade. If you can't do a form under friendly pressure like that, how are you going to ever deal with the much bigger stress of a real attack in real life? The stress of sparring, the stress of facing fears, facing all manner of emotional and physical stress and learning how to handle it makes you stronger and more able to handle any manner of stress in any part of your life. I have been where you are at, I don't mean this to sound harsh. But you asked for opinions. If you have faith in your instructor to mold you into a better MAist, do what they say. If you don't have faith in them, find another school. I was very scared of doing public performances when I began. It was only by doing them over and over and over that they became not too big of a deal to me. Best of luck to you in the tournament!