I absolutely agree that this is what they are after, but it is a very poor way to extract the information. The interviewer basically hands over his preferred tools and asks you to build something sane out of a pile of vague rules under extreme pressure. Its a close metaphor to real-life where a client (in-house or otherwise) will hand you a pile of vaguely defined rules, someone else gives you a particular toolset and then you go about your job, but it is broken.
Remotely performed and turned in code tests (if crafted correctly) are a better assessment of a developers abilities along with code samples of his / her work. But I think all of that should be reserved for people without an established work history. I have excellent references. I have a solid work history. i passed the code test. I have code samples and open source code. Why in the holy fuck am i writing with a marker on a board or worse, answering a riddle?