I think it does its job perfectly; gives them candidates who are willing to put up with 10 hour study sessions for weeks OR people who are naturally brilliant (and don't break under pressure while being watched). It filters out a lot of insanely good candidates by doing so, but who cares when you have 100,000+ job applications?
I'm surprised this hasn't become the main point of discussion here yet.
Edit: I mean Google's interview technique, and how people prepare for it