I think this is a good point. As someone who also fumbles a bit if you put me at a whiteboard and start asking esoteric algorithm questions.

So when I am hiring someone for my team, I ask them about projects they are familiar with, and drill down into those. Puts them at ease and you pretty quickly get to know if they are talking out of their ass or not. Then after we get through that, if things are going well, I'll bring up the kinds of problems we're working on and see if it piques their interest.