The major problem with this approach (unless you are very vocal about the process up front, but still even then I see it as problematic) is it flies in the face of most education at all levels, at least as practiced in the USA. This is fundamentally more an issue with the way we scale teaching up to so many students than the way interviews are handled, but it still ends up being a huge problem.
People are expected to spend 20-ish-plus-something years learning and being tested in a pass/fail know-it-or-you-don't manner, and then are thrown into an interview environment that is entirely different.
It isn't surprising that a lot of people who would be perfectly capable of doing the work get completely hung up on the fact that they are wading through the muck of topics they don't fully understand in this environment that otherwise feels so very much like a school test of knowledge... especially when you throw in the types of social awkwardness and fear of public failure that are relatively common among engineers.