We consistently do this in Sandglaz whenever we interview for a technical position. It most closely aligns with how work is done in real life, and we give candidates a reasonable amount of time to do the project. We ask them to document what they would do if they had more time. It is more of a way of peering into how they organize code, their understanding of technical debt and prototyping, and their ability to write unit tests.

It's been invaluable in determining candidate fit.