I agree, "challenge projects" is closer to what I am talking about.

To be clear, I not debating that it isn't useful for the employer. If the employee gets to interact with the team (which I think is rare) it could be useful for the employees too. I'm just suggesting that it's not necessary and the upside leans heavily on the employers side.

Why can't you bring in an existing design / engineering problem into the interview and discuss it. This would give you more than enough insight into someone's technical chops and problem solving ability. I've done it when interviewing people and it's worked wonders. These types of conversations also gives you much more info on a candidate.