I'd say it's because 'it' is a non-specific pronoun - referring directly to the aforementioned object, the cheese. 'That' would be used to distinguish between one object and another. As in the following conversation: A: 'I don't like cheese' B: 'Nor do I. It makes me sneeze. So does pepper.' A: 'Oh, god, yeah, that really makes me sneeze. I only have to look at pepper and I start sneezing.' B says 'it' to refer to cheese, because it's the only object in question. But then A says 'that' to refer to pepper because there's now a need to distinguish between objects. Does that make sense? Would it satisfy your students?

Thanks Jmat! and it seems you are not alone in suggesting this. I've done a bit of research and it seems that many academics refer to personal preference for these kind of vague expressions.

To me, "I think that's a good thought" is more natural. I'd say "it" to refer to one of my own thoughts and "that" to refer to someone else's.

Thanks, eiei, and I think it's a good thought - thank you! I definitely agree that 'that' in this case would make the 'cheese' more 'definite' - like 'the' instead of 'a'. But, to take another example, why don't I say ... 'Thanks, eiei, I think that's a good thought' .... I'd have to answer that either work here, with no real reason for my choice ... would you agree ?

doesnt "that" have more specificity attached to it? like as opposed to cheese in general, it would be a specific one that is physically there and youre talking about that one...so if we keep using the cheese analogy, instead of any cheese in the supermarket, its the specific cheese at a function that's making you sneeze, perhaps because it is off.. "cheese makes me sneeze" "that cheese on the table over there makes me sneeze" ...just a thought :|