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Whenever I interview vendors or contractors, I have a little bit of leeway from following company policy, so I sit them in front of a computer with Visual Studio and internet and tell them they can use whatever resources they want to solve the problem.

From the other side, I haven't had a technical interview for a few years, but back when I did, I eventually addressed the whiteboard thing by bringing a laptop and telling the interviewer that I suck at whiteboarding code, and I'd like to do it for real instead. I think I've tried that in three interview loops and gotten the job twice.