You can ask people to test on a whiteboard too - draw up a sample dialog, or system, and ask them to discuss what ideas they'd have for testing. I really like Cem Kaner's approach to this. He goes into some detail about how he conducts test auditions - he tends to give two similar examples, with the first one as a practice run.
I've found it very revealing to see how different candidates react to being asked to come up with test ideas for a sample dialog. Some run out of ideas very quickly. Some people are very single-track minded, and all their test ideas are along the same lines. Some people ask hardly any questions, and others ask lots. Watching what kind of questions people come up with gives me an insight into what kind of mental model they're building, and what their blind spots are.
I've also tried giving people an actual app during an interview - I didn't find that much of an improvement on the whiteboard, personally, but it's possible that a better choice of app, or framing, would have helped there.
I'm not so much of a fan of "test this lightswitch" or "test this pen" questions - I prefer things that are close enough to real that they trigger genuine questions for people. I know some people have difficulty in getting inspired by things that don't seem like authentic problems, and I don't want to disadvantage potentially promising candidates.