My take on it is rather different.
I wrote up a flowchart for one of our most used, yet more difficult to initially grasp, assembly processes in the plant, an I/O chart and a blank program (I did however, fill in the I/O for them-- I'm not
completely heartless). The applicant then has to write a program for the process. No time limit.
It's rather like the
Kobayashi Maru, in that it's kinda like a no-win scenario, but it's also a test of character-- which is really what I'm after aside from what they know. I've had an applicant walk out cursing after 15 minutes (apparently it called him out on his programming skill claims), and another work at it for 90 minutes and wanted to keep at it even when I stopped him. You can guess which one I hired.
Using this test has given me two good fellows to work with, who I don't have to completely handhold as if he were an apprentice. Some training still goes on (finer nuances of networking and routing, for example), but in the end, there will be two guys going from just good to excellent.