It still is? Few engineers could build a good spell checker without external libraries, giving a database of valid words.
Writing a spell checker that quickly identifies if a word is in a list of valid words (the problem described in the article) is a trivial problem for anyone who has basic algorithms and data structure knowledge. It's the classic example for using a trie: https://en.wikipedia.org/wiki/Trie
The problem described in the article is doing it within very limited storage space. How do you store your list of 200K words on a system with only 256K of memory? This is the challenging part.
Your hard disk is almost always larger than your RAM. You only load into memory what's needed at the moment. I hope that gives a hint on how to proceed with the above problem.
I failed that interview by overengineering.
Almost. You needed to clarify what the interviewer was asking and discover requirements. As much as HN likes to hate on coding interviews requiring specific algorithm knowledge, determining requirements is very much part of the job, and engineers have a tendency to build what they want to build, not what the customer wants.