Judging candidates based on their effort for an exercise that focuses on your existing product is a touchy subject. Many candidates (especially good ones) will view this as spec work - if you want their expertise for a limited time, you should pay their consultant fee. Otherwise, the effort they put in often shares more about process than free product ideas.

But that's speaking broadly. Anecdotally, I know a PM who put her heart into an exercise like this for a company she really wanted to work for, which chose not to hire her, and a few months later released a product update that matched her ideas. I don't know if they already had the product in the pipe or if it differed significantly in execution, but it did invite an easily-avoidable dispute. Even if not a legal issue, it could have been a PR one.

Of course you want to gauge candidates' understanding of and engagement with your real business, so don't throw all those conversations out the window. But when it comes to early vetting exercises, focusing on competitor products or similar products by companies in other categories can still tell you a lot about how the candidate approaches and understands real challenges/opportunities/constraints while skirting some gray areas.