I've been faulted for this in my interviewing, but I think that you have to pose at least one problem that can be explained precisely in less than a minute and solved completely in less than an hour. Such a problem will inevitably have an abstract, theoretical feel.
It's also good to ask more realistic questions to test domain knowledge, but there are candidates who can string the right words together in the right order all day long but fall apart when faced with a real problem. It's very frustrating to try to identify such people using a loosely-defined, open-ended problem, because they can speak competently and professionally while avoiding the aspects they don't understand, and many experienced candidates will exhibit the same blathering behavior even if they are technically strong, because it's a standard mode of speaking that everyone in the industry has to learn.
I.e., if I faulted people for spouting BS in response to realistic, open-ended questions, I'd rule out strong candidates as well as posers. Asking candidates to completely and precisely solve a simple problem separates abstract thinkers from people whose skills are purely verbal.