"this is not typically how even a confident, prepared, solid developer approaches coding problems, so they can be poorly prepared for this style of interview. The result is you don't get an accurate representation of the individual."
It may not be how you approach coding problems but it tends to accurately reflect how people program in real life, so I don't think it's all that much of a stretch to ask people to show it in an interview. Nobody gets an assignment to write a scalable, testable, blah blah blah 100 pages of requirements project and just sits down and writes it linearly from start to finish. Everything is incrementally developed.
"it takes an awful lot of the interviewer's time to prepare,"
Perhaps in general, but not for me past the first couple of times. However, that's because I do strongly agree with...
"You need a very strong technical resource to deliver this style of interview"
Yes, definitely.
However I don't believe there's a way around this. I don't believe you can get high-quality results for technical hiring from any possible "interview" you can hand to a non-technical programmer.
Moreover I don't even know why people think this is or should be possible. Other than the popular "I want it therefore it should be possible" argument, which the universe doesn't particularly respect. I wouldn't expect that even armed with a prepared formal interview that I could interview an industrial chemist, oil rig engineer, or a plumber. There still seems to be a certain amount of residual contempt for programming in some circles and that includes the idea that a non-programmer should be expected to be able to interview a programmer at anything more than a super-basic level. No, programming is at this point as technical as any other career out there. It really wasn't 30 years ago, but it is now, where the basic standard for the simplest possible project now encompasses a suite of technologies and competencies just to get started and the complexity goes up from there.
Also, while a senior engineer perhaps shouldn't be doing full time interviewing, interviewing is extremely high value work. It determines the course of the entire team for years at a time. The interviews I did years ago still determine the course of my day-to-day activity. Huge impact.