Where I'm currently working we do pair programming interviews (usually with ping pong). Some candidates don't like it. Sometimes we have technical hitches. However, it's been the best method I've seen in my fairly long career. I can't think of a single time that we've hired someone and been surprised when they showed up to work. The strengths we've seen have actually been there and the weaknesses as well. We may well miss some good people, but I think that's inevitable. Having a predictable hiring practice is much more valuable to me.

Our practice is pretty interesting. We do a telephone pre-screen and then 2 hours of pair programming (4 25 minute pomodoros pairing with a different person each pomodoro). We generally do the pair programming remotely. I can't even remember the last time we did an in person interview. We also try to accommodate people who want to interview outside of normal business hours. It's a fairly long interview, but skipping the commute helps a bit (I hope).

Just for people who aren't familiar with ping pong, one person writes a failing test, the next person fulfills that test and then writes the next failing test. It ensures you pass the keyboard back and forth frequently and that both partners are plugged in.

Like I said, some candidates really don't like it. There is still a lot of stress having to produce while being watched. Also, not very many people have experience with pair programming and TDD, so ping pong is pretty foreign. However, the interviewer can help quite a bit, driving the process and even solving the problem. Over the period of 2 hours, hopefully the candidate can settle down and just program naturally. It also gives the interviewer a lot of leeway to ask questions like, "What do you think of this idea?" and see how they react.