1. how good is the candidate at problem solving?
2. is the candidate able to think in code?
3. are there any glaring syntax errors?
To assess the above three, a whiteboard, paper or Google Docs is sufficient. I'm not averse to using an IDE, just that the IDE's syntax checking hints will shift the candidate's focus to writing syntactically accurate code (#3) rather than on the problem (#1 and #2).
The other problem I see is when you don't agree on something with the interviewer. One guy made me write some fictitious SQL queries on a doc and then asked me some questions. He was wrong about several things but we didn't have any way to test it. I was so shocked he didn't know that stuff that I had to tested after to see if I was actually wrong, but no.
Stay away from companies that do this if you can. It indicates a deeply broken hiring culture.
It's just a shared buffer that works pretty reliably and no interviewer cares about your typos or lack of indentation.
Honestly, I have no idea why anyone would do this. What this will achieve at best is optimising for rote learning and selecting for people who are capable of writing syntactically perfect code unassistedly. This however is an unrealistic scenario during daily development work because that's - among other things - what an IDE is for.
Problem analysis, mapping requirements to code, finding solutions in a deliberate rather than haphazard manner - these actually relevant aspects of software development aren't assessed at all by such a 'process'.
"Do you want tabs or spaces?"
> "Spaces please"
"Fuck... okay I guess..."
There is an add on called Code Blocks that you can install on google docs for free. Huge language support - but don't expect it to be a fully functional ide.
Other than that, you'll want to turn off auto-capitalization, and spell checking from Tools->Preferences.
No reasonable interviewer expects you to write perfect code on a whiteboard or in a non-IDE editor. I'm sure there are plenty of unreasonable interviewers, which is an indicator that you don't want to work for them.