"I get what you're saying, but I really don't think it's fair to ask people to do work on their own time -- for free -- in order to be considered for a job."

Bravo.

I can't stand when companies do this. Whether it's design or development, it's basically spec work. It's one thing if it's a general question, but if they ask you to do work related to their service, why not just pay them for a few hours or a few days?