agreed. But Yelp and Facebook do a micro version of this for job applicants. They give you a test - usually along the lines of, mock up something to make our platform better. You have 24 Hrs. Go. Since they're prol two of the hottest places to work, not least because they're two of the biggest pre-IPO joints out there, they can get away with this. Even if you get rejected (and I did), they get your idea (and mine were great, I tell you! Fully mocked up). Well, I bombed the intws but they did like my mocks. You feel like a cheap prostitute afterwards.
That actually bothers me a bit. You do work as part of an interview, aren't offered a job, and aren't compensated for the work done, but the interviewing company gets to keep and use the work. I'm assuming the applicant would have had to sign something to that effect at the beginning of the interview process, but it just feels like a raw deal to me.
The interviewing company does not get to keep and use the work; even if the applicant signed something, if consideration was not given, it would be difficult to use the work.