Isn't this just as bad as the "if you've seen this before" whiteboard questions? A lot of specific problem domains don't make for good general purpose questions. If I used my daily work as an interview question I'd insta-fail the large majority of candidates because they don't have relevant PhDs.

There are good balances. The question I ask is a real problem for a real product but quickly reduces to something small and manageable rather than getting bogged down in incredibly specific requirements.