Gozo Shioda often used "old" 「老」 - most of the time that Kisshomaru wrote it he used 「大」, which is the same character used by Sokaku Takeda (but pronounced "Dai-Sensei").
"O-Sensei" is actually not all that uncommon in Japan, sometimes even just referring to the main instructor in a group of instructors - but it can be kind of jarring for US Aikido students to hear.
My personal theory is that the whole thing started when a reporter interviewing Ueshiba was called "Sensei" by Ueshiba and then replied "Well, if you call me sensei than I will have to call you O-Sensei". But that's just my hunch.
To give an example from Sugino Dojo: When Yoshio Sugino sensei was alive, everyone in the dojo referred to him as "sensei" (there was only one "sensei"). If referring to other teachers in the dojo, one would use the name + sensei (Iwata sensei, for instance). Back then, Yukihiro Sugino sensei (current head of Sugino dojo) was referred to as Waka Sensei ("young sensei") until his father's passing (also to imply that he was going to take his father's place as dojo cho). Today, he is called sensei. When talking about "sensei", everyone knows that means Yukihiro Sugino.
Today, when talking about Yoshio Sugino, it is not uncommon to use the term "O-Sensei". Not a formal title, but both a way of distringuishing between the current "sensei" and the late, and as an honour to one's late teacher.
To add to the confusion, the term "sensei" is used not only as a formal title like "teacher", but also as a way of showing respect towards a senior. So, I would call the seniors in Sugino dojo "X sensei", regardless of them having a formal teaching position or not. Likewise, my junior, who translated for us when we were in Japan, referred to his own seniors (myself included) as "X sempai". This to show his respect towards us when talking to seniors and show that he understood his place.
As Chris implies, we Westeners often have a need to formalize these things. Titles like this are used in context and will change depending on who you are talking to and about.
BTW, I find it amusing when I hear Western teachers say in videos: "Hi, I am X sensei and I am the head of this dojo". A japanese will not refer to himself as sensei, as it is a honorific title used by others. Just as a British or American wouldn't call himself "Sir".
(this is probably way off topic, btw)