So in order to work on an audition project, I'd have to be unemployed already.
But specifically if you were taking an interview rather than working a side job you could make the argument that the clause didn't apply in any case.
It all comes down to how much you pissed off your ex-employer by leaving, and how much they want revenge. No-one is going to gain anything from suing you after you've moved jobs.
But my current work contract has an anti-moonlighting clause that could also be a problem. It states that I can't have other demands on my time that would interfere with my day job. Now, I interpret that as meaning I can do side projects that have no deadline and just be luxuriously slow and lazy at making progress on them. But for an audition project I probably wouldn't be able to take it that slow.
In my past of applying for jobs as a designer, I had companies that would ask for take home tests. I always refused and of course didn't get the job. Conversely, other companies I worked for offered freelance positions (probation) before settling onto full time which I thought was far more effective and fair method at evaluating me as a long term candidate.
If they have neither, then it's absolutely fair to ask them to do a small audition project first. Otherwise how can you be sure they're competent?
Keep in mind this idea doesn't exist just in recruitment. It's basically recruitment's version of what's called a "proof of concept", which is proof that the party that is pitching/asserting something (i.e. their skill) can actually deliver.
If the project is a couple hours, then sure, I have no problem with it. When it's an entire real project for the company, you're just donating a week's work to someone in the hope of getting an offer letter.
While there's always some bias, I think it shifts quite a bit once you move from an artificial "interview environment" to a work environment.
Plus as has been said, since they candidates are working with the people they would be working if hired and that relationship doesn't work out, then maybe it's better to keep looking for someone else.