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Yes, perfect foundation stallions paper C. Exceptional stallions are Bs, which reflects about one generation of ability difference between them. Technically perfect foundation mares are Yellow, and Exceptional mares are Red, but because mare papering depends so much on foal quality most people don't keep foundation mares who paper yellow because it's so easy to get the red ones.

I've bred in-house down to the 8th generation, so the following information is based on what I've personally seen, not necessarily any kind of pickiness.

You can expect to see mostly superior B-papered colts from C-papered stallions, and can get A-papered colts from B-papered stallions without a whole lot of grief. So by the 3rd generation at most, you should have reached the A plane. Getting through the As usually takes me about three generations. Occasionally if you're really lucky you do get the perfect C->B->A->*Star progression, but if you're not playing with heavily boosted breeding stock it's a lot more realistic to expect *Stars in the 5th generation.

Mares basically follow that progression, though they're more apt to go Red->Red->Blue->Blue->Blue->Gold. The girls always seem to lag behind the boys in the breeding department, though Ammit recently tightened up Strict Mare Advice so hopefully this will be less of an issue in the future.

With stallions, comparison testing is the final answer on whether a colt is better than his stallion. If Comp Testing says he's better, he's significantly better, period, even if his papers are the same as his sire's. (I've had many streaks where I've had 3 generations of As, each one better than the last; sometimes it bugs me and a 1% breeding boost pushes the 3rd one over the line to *Star.)

Mares, again, are harder. You do want to see a progression of papers, like I said above. You can also look at their AFPT, now conveniently located on their family tab. Mostly you want to see a .5 point increase from generation to generation, using 10 as a baseline for perfect foundations. So 10.5 at second gen, 11 at third, 11.4 at fourth, etc.

That said some people are LOADS more draconian when it comes to personal standards and only keep the best of the best, so they have tighter curves.

I've narrowed my own heard down to B and A papered foundation stallions, because it's just my personal preference. I expect superior A papered boys for 2nd generation, with the colts from B papered sires getting some more leniency - comping AGA an A papered foundation. For 3rd generation I expect Star colts from all/mostlyrics A papered grandsires, and superior A colts from those with all/mostly B papered grandsires. I would expect to see Star colts from those B foundations by 4th generation. So I expect A-A-Star, or B-A-A-Star.

I'm one of those crazies who is super strict on my mares, too. Mainly because I've seen over and over again, lines stalling out and frustrations over a plateau around 4ths generation. It is possible to have blue papered 2nd generation mares from even B papered foundations. It's less common from B papered foundations, but is possible, and I am all for quality, over quantity. So I expect Blue papered mares at 2nd Gen. If a mare with a B papered sire papers red, I'm more likely to offer her for sale or brood and alter any foals of hers that I have kept. While if a mare with an A papered sire papers red, her and any foals she has produced will be altered and tossed in the show barn. In the 3rd generation, I will expect Blue papers for mares with B papered grandsires, and alter any red mares, and her foals. For those mares from A papered grandsires, I expect them to keep up with the colts of 3rd generation, and paper gold. Again, I am strictly concerned about quality over quantity, and have produced to date ONE gold papered 3rd generation mare. The rest have been altered, along with their foals. Now those kind of guidelines are probably crazy to some, some seasons they seem crazy to me even, but I figure if I know I can produce Star colts by 3rd generation, the mares of the exact same lines can also be Gold. And if I'm going to snip anything less than a Star for that generation, then I'll snip anything less than a Gold as well.

Just my thoughts, and how I breed personally, but I can always appreciate and admire how others breed as well. Biggest concern should be if you yourself are satisfied with your herd, and the direction it is going. Breed what makes you happy :D