I don’t need to say that I’m using a text editor, instead of hole punched cards. It’s also quite common to use an IDE instead of a text editor these days in coding interviews. When I was a student I remember teachers saying that they considered an IDE as cheating since they wanted to test our ability to remember syntax and to keep a mental picture of our code in our heads.
Personally, I despise these types of tests. In 25 years as a tech manager, I never gave one, and never made technical mistakes (but did make a number of personality ones -great technical acumen is worthless, if they collapse under pressure).
But AI is going to be a ubiquitous tool, available to pretty much everyone, so testing for people that can use it, is quite valid. Results matter.
But don't expect to have people on board that can operate without AI. That may be perfectly acceptable. The tech scene is so complex, these days, that not one of us can actually hold it all in our head. I freely admit to having powerful "google-fu," when it comes to looking up solutions to even very basic technical challenges, and I get excellent results.
It's not part of the job now, unless you're too inexperienced to estimate how long it takes to find subtle bugs.