These are interesting points.
Just to clarify first, the exercise should not take more than 1 hour. And I mean it. It is not difficult, or tricky or anything. It is used 1) to make sure the candidate can do very elementary things, 2) as support for follow up during the on-side interview.
Regarding "getting the on site", if you don't do the exercise before you would get the "whiteboard" BS. And then you may be competing with people who spent 2 weeks reading "cracking the tech interview". How is that different?