I have old pet projects from times when my work at previous jobs was interesting but not all-consuming. The work I do for my current employer is so interesting and fun to me in so many ways that when I have spare coding time on non-work-hours, I'm still working on these work projects. My work projects are my pet projects.
Granted, someone like me is less likely to be in the market in the first place because I love my job, but if I suddenly were in the market (there are many very hypothetical reasons this could happen -- company runs out of runway, company is acquired by company that shifts focus in ways I don't care for, etc, etc) a filter like this would cut me out for all the wrong reasons.
Having said all of that, I think people hiring employees do need to employ some arbitrary filters that could potentially filter out stellar employees as a side effect, and I don't think that's a horrible thing.. it probably helps more often than not and is thus worth the rare corner case situations where it ends in a tragic mistake.
If I'm in the market looking for another job I have more than enough contacts with people I've worked with in the past that such arbitrary filters are a non-factor for me, so the take away is that if you're a great developer, develop contacts and then you don't have to worry about things like this.