Hasn't the theme in Paganini's 24th caprice been reused enough? :P
What your instructor is telling you to do is most likely just for an exercise, and it certainly is a good exercise to take another's work and create variations for it if you can't think of your own themes.
There are plenty of well known and enjoyable pieces that are in theme and variation form, so no, it's not just a format to use for exercise.