True, but a paid short-term contract to do an actual task for the company would work. Knock out a small feature during the night/weekend. Keep it something contained and relatively straight-forward. If they can get it done, it demonstrates the candidate's ability to parse your codebase (so they are learning something they'd need for the job anyway) and they have contributed.

I think most companies just don't want to take the time to set this kind of thing up. Easier to just pass on people that won't do the requisite song and dance.

No it still wouldn't work for someone with a current job. That's a huge risk if you're responsible for supporting a family. If you quit and the new job doesn't work out, then you're kinda hosed.

Its a good idea but speaking as a non-citizen on a work Visa such kind of work would technically be illegal for me to do.