That's a very gracious interpretation I think. The snippet illustrates a kind of trivial bug (uninitialized variables) that should really jump out at anyone who is used to writing C code. (And I think it's clearly C code, and not pseudo-C code.)

In fact, it will generate a compiler warning (with -Wall).

The conversation (which OP said was condensed) clearly demonstrates that the interviewee does not understand that the pointer is uninitialized.

To suggest that the interviewee confused it with

  char *p = ...;
  *p = 'c';

makes no sense, because he said the memory was dynamically allocated 'by the compiler'.

Also it would still matter what ... is here.

For example if it was a constant initializer like "string", then the memory would be statically allocated and write-protected.

If on the other hand it was a call like malloc(1), then you would expect some error checking to see if malloc failed.

It's actually a pretty neat little snippet.