> We realized they were just good interviewers
It sounds like they didn't hire solely on the strength of the résumé, because then wouldn't interview performance be irrelevant? In contrast, there are people with strong résumés who don't interview well, regardless of the interviewing method.
> The two people I know we hired on that basis quickly cycled out (one fired, one quit) because they were pretty terrible.
This is how it should work, I think. Hiring is extremely difficult. Mistakes will be made. The key is to quickly correct those mistakes and move on.