If the candidate is hopelessly stuck in a state of circular analysis paralysis then the quality and thoroughness of their answer would ultimately suffer. It would demonstrate either poor decision making, weak communications skills, or limited comprehensiveness.

There are a lot of candidates who need to have their hands held by a parent authority or are hopelessly incapable of forming original ideas. This is a means of identifying such people so that they can be removed from consideration.

> Do you expect the candidate to ask for clarification, or is that a bad sign already (since they were to dumb to understand your "simple question")?

If I had to answer the question for the candidate, then yes, I would consider that a bad sign. It is a simple hypothetical question demanding a hypothetical response.