Piccolo gave up out of veneration, that I don't disagree. Otherwise Piccolo wouldn't have backed up, no matter how outclassed he is. He didn't enter the tournament to surrender just because he wasn't the strongest in it, because like GokhanDBZfan said he entered with the intent of fighting Goku and Gohan and I doubt he even reached Goku's Cell Games strength.
I also don't think Piccolo could sense Kaioshin, since he never did any mention of how powerful he is or something like this. But Vegeta was just saying they could not gauge Kaioshin's power, that's different from saying he has no sensible ki. That's what Mike was saying imo.
I actually don't have that much of a problem with Kaioshin > Piccolo, but I'm still have a hard time seeing Kaioshin many times stronger than the base Saiyans.