Maybe it is not about him being disqualified, maybe it is about the fact that the other people they interviewed were able to jump through their hoops and do all the tricks and were equally as qualified?
For one, setTimeout is pretty run of the mill. If you haven't come across a situation where you need to wait a period of time before initiating some event, you simply haven't coded much. If someone else had just nailed the question in the interview before him than—hoop or not—they've proven a skill he hasn't.
Even if we ignore this, the "What Really Happened" area sounds like he only admitted he doesn't know, and worse, that he doesn't know how to proceed. Another comment above asks if one small set back is really a deal breaker, but in my opinion, not attempting to overcome a problem you haven't seen before shows more about a candidate's abilities than simple knowledge. Prove you can find a solution when all you have is a basic idea of the problem. Take a hint and run with it. (The interviewer gave the method name as a hint!) Google the answer.
This post hints that the position was closer to entry level, so I would suspect that curiosity and autonomous problem solving are fundamental requirements for the role. When you're green a lot is going to be brand new, so you have to be able to learn on the spot and run with it.
In fact, this is the primary reason I'm trying to move away from 'vanilla' front-end to more heavy js or backend stuff.
Completely agree. They'll toss the resume of someone who is an expert in graph theory, because they really need someone who knows machine learning, completely unaccepting of the fact that someone willing and able to become an expert in graph theory can probably do the same on machine learning.
This all plays into the current trend of businesses not being willing to train employees.