A contrarian p.o.v: They are going to lose out on exceptional cases where the candidate is a great engineer but is not able to devise a strategy towards a solution. However, there is a huge correlation between a good engineer and the ability to arrive at the solution (keep in mind they look at how you arrive at the solution too)

Personally, I'd make the candidate solve a decent intermediate level problem using a computer (and Google too). Give him/her the closest approximation of the typical job environment.