I strongly prefer this approach, as long as the project is interesting enough to attract engineers, and allows you to assert the aspects you want to see in them

I strongly prefer this approach, as long as the project is interesting enough to attract engineers, and allows you to assert the aspects you want to see in them. The coding project we give to candidates is to implement an open source Hacker News client. If it were me I won't mind doing one and put it on my portfolio (which I did), regardless of whether I pass the interview.