If the interview time is paid, sure. But if it's not, agreeing to do unbounded unpaid work for a chance of being hired for a paid gig, especially when it's not even clear the chance is particularly strongly correlated to effort put in, gets worse as a proposition the longer you spend on it.
I was speaking more from the side of the company; from the side of the interviewee, it's less clear-cut; if you're the type that doesn't tend to do well in interviews, it might be preferable, but if you don't feel like you'll do a better job on a homework-like problem, then it's definitely worse.
By design. In the candidate pool, there will be some who see the odds as too steep. For others the cost of completing assignments is lower, making the proposition better. Not good, but comparatively better (less bad) than for the former kind. And that's how we know whom to hire.
