This seems completely backwards to me. Is like saying "hey, do you know that relevant on the job experience that you have? we don't want to hear anything about it, here you have a made up scenario".

Ok ok, that is a bit cynical. Asking to design novel systems can give you some good insights about the candidate, or help with people who don't have experience building systems yet. Still it seems to me that asking candidates to describe real world systems that they have actually built is much more useful at checking their skills than building imaginary systems.

One argument against this is that candidates can "cheat" by preparing in depth a made up example. But how is that much different than the current approach?