Why do my motor skills suck when I'm feeling self-concious and what can I do about it?

I think you are too shy and lack self confidence because of that. You should try to increase the occassions that you must do anything in front of people. You just need practice, always drop your shoulders, breathe slow and deep, relax your facial muscles, and look at people softly.
Be prepared for your tests and first practice speaking about a subject in private. Sort of like acting lessons to a mirror. Have fun with that and then move on to having people test you from a set of flash cards you have made up concerning different subjects.

Effectively you are suffering from stage fright, or nerves. @MaryW covers really good methods for dealing with these. The one thing I would add that really helped me (with performing on stage in front of others) is realising and accepting that no-one is wanting you to muck up, no one is hoping you’ll do badly… and furthermore, no one will actually really care if you do. It won’t be the end of the world – at worst, you just may have to do it again.

As @harple said, it’s stage fright. People have a number of options for dealing with stage fright. You have your chemical solutions and your mental solutions. There are anti-anxiety drugs that you can take to calm you.

However most people prefer the mental techniques. One, as @harple said, is to talk some realism to yourself. Everyone takes this test and almost all of them pass it. The test giver wants you to succeed. He or she is not really trying to make you fail. They just want to make sure you are safe.

There are breathing techniques that can help. Start taking long slow breaths—slowly in and out. Count the seconds on inbreath and out breath and try to make them equal and try to make them longer. This allows you to focus on your task—driving, without having any mental time left for anxiety.

You can also practice giving up. Some people do this with prayer—giving the future up to God. Others just realize that it’s too late to do anything else now. You can’t prepare any more. All you can do is what you do. Whatever you do is what you do. This takes the pressure off because you realize you are no longer in control. Circumstance (or God) are in control. Your job is to merely drive the car. The universe will tell you if you pass or not.

This is also called giving up your attachment to the results. You are taking the test for the sake of taking the test and care not for the result. This is a good practice for anything you do. Focus on the doing of it, and let the rest take care of itself. If you enjoy driving, then just enjoy it, without worrying about being judged. For you, the driving is important. Your job is not to judge. So you don’t even have to think about it.

Finally, there’s nothing like preparation. It gives you confidence. If you feel like you know what you are doing, you just do it without worrying about what anyone thinks.

Good luck.

I have this issue, too. There is nothing like practice. I don’t mean practicing alone, but in front of others. The more you do anything, the better you’ll get at it. And remember, everybody plays the fool eventually. Don’t let it stop you from doing what you love!

As a bus driving instructor, I have seen your problem countless times. People get accustomed to me and fall apart with the examiner. The simple answer is to concentrate on the task not the watchers. Sounds easy? No, it is hard. Just remember that the examiner does not fail you, he leaves that to the candidate.

You have a huge thing in your favour, “I drove ATROCIOUSLY in front of the instructor.”, in other words, you know your faults and admit to them. That means you are getting where you need to be.

A few points:
No driver is perfect, we all make mistakes.

Don’t worry about the mistakes you make. If you dwell on a small error, you will end up making big ones. Remember your mistake but don’t let it it take over.
Drive as your instructor has taught you. Don’t change things to impress the examiner.

Keep your head moving. Observation is 50% of driving. 25% is acting smoothly and in good time to what you see. 25% is knowledge, know the rules and keep to them.

Examiners are human beings, they know how you feel because they are constantly being retrained and supervised.

“you will stop worrying about what others think about you when you relize how little they do” (I can’t remember who said that, but I think it’s great advice. You start to suck when you feel afraid to embarrass yourself-but remember you are the one who needs to be happy)