Google is hardly the only company to do in-person all day interviews. I've had several in my career, none of them with Google. IIRC, they were with Shopzilla and Grant Street Group, and Livetext (not exactly Google-famous companies). I wasn't thrilled about flying out for 6 hours of interviews, but at the time I thought it was reasonable for them to ask for this. I'm not sure I'd do it again unless I was incredibly excited about the position in question, but I'm older and more jaded now.

As to how much we pay ... Our pay is very good, and all but one of the positions for which we've had the homework requirement have been telecommuting as well. It's actually a pretty desirable place to work if you like good pay, telecommuting, working at a small company, a low pressure environment (we've been profitable for many years), and various other perks (training budget, flexible hours, blah blah blah).