The "We expect you to do this work for free to prove your worth to the company" interview model tells a lot about the company, in my opinion. If they'll ask you to do it once, they'll ask it a thousand times.
I've never asked someone to do 1,000 non-trivial programming tasks before hiring them. :-)
You have clearly missed my point. :-)
Would "keep track of your hours, we'll pay you $rate/hour for the exercise" during the phone screen be better signaling?