If I had to reduce the debate to two clear groups, it's that one group believes that there's a bright-line distinction between "good" programmers and "bad" programmers, and that the questions-at-a-whiteboard model is an effective way of discriminating the groups. The other group doesn't believe in partitioning the world into two clear groups.
It isn't debatable that there are a lot of people who can't write code. I believe that trivial phone-screen coding problems are pretty effective at weeding those people out. Beyond that, it's much more about candidate/position fit, and that's a more subjective question. The problem is that programmers tend to be uncomfortable with subjectivity, preferring instead to posterize the shades of gray -- that's how we end up with the apocryphal Google engineer who can't code.
In your stated example (person hired; can't fathom basic realities of C pointers), I doubt that it reflects a complete inability to be functional in some programming role -- just not the one you were needing. Most "Rails programmers", for example, would probably be hopeless in that situation, but perfectly capable of cranking out websites with Rails. I've seen a fair number of real-world programmers whose (lack of) knowledge of algorithms and data structures makes me cringe -- and I certainly wouldn't hire them for the kind of work I tend to do -- but I have to accept that they're effective within their niche.