Challenges administered via pair programming can be useful if your team/company operates predominantly in that mode. If most of your actual day-to-day work is done individually, though, I think your challenge should mirror that reality.

Interviewing all candidates in a pair programming setting risks weeding out all the people who are great at the job, but get anxious in a paired interview scenario.

A job interview is already pretty stressful and anxiety inducing. Adding somebody looking over your shoulder while you type into that mix can be really rough on some people.