[mnutt]

Definitely. I would have liked the test to be "would you be comfortable using this word in a sentence? (if you had to)" Even as a native speaker there are times when I know the definition of a word, but opt for a simpler word because I don't know all of the implications of using it.

[eru]

And even if you were, you have to make sure that your listeners understand you, too.

[jtheory]

Right, unless you want to ruin your point entirely by stopping to define words. Communication relies on shared vocabularies, not just one person's vocabulary.

There are plenty of words I know that I generally avoid in conversation for practical reasons. Entertainment reasons, though... I caught my wife teaching our not-yet-two-years-old daughter to use the word "etiolated" when referring to a green bean that was wilted and yellowish.