That error mode (and it is one) doesn't seem so bad, relatively speaking. Personally I find puzzles interesting and while the value is deeply questionable (I mean, how often do you implement binary search or a novel hashing algo at your job?) I actually rather enjoy jumping through those hoops. Far, far worse is just getting ignored entirely. When rejections start looking good, simply because there is some evidence that they actually saw your application, you know things are bad.
For me I would absolutely never want to work for a company (or boss) who asks people to do a coding challenge before the interview, because that's indicative of a kind of leadership and people I simply don't like. So it's a great filter for me. Once they mention a coding challenge, I end it right then and there, and take them off my list of people wasting my time.
