A note on point #1: I’d disagree with the phrasing about “design is supposed to serve business needs”; for most projects it needs to incorporate and account for business needs, but in balance with user needs (check out what happens when only business needs are considered: https://blog.intercom.com/what-we-can-learn-from-google-plus/).
That said, yes, it’s hard for a designer to “just know” the business needs in a design challenge situation. But I’d not want to hire anyone who doesn’t ask questions, and this is one of the questions I’d hope to see asked — or at least some consideration in the proposal about “this is what I’d need to know and here’s how I’d find out” (the last part is critical).
Point #2: Indeed! I get to a lot of solutions by a) starting at things b) walking away. I’ve been to job interviews where right off the hiring manager asks me, “Well, what would the screens look like?” That’s disappointing to hear, especially from people I usually admire.
Point #3: Yes and yes. I came to the parent article to make a public plea that no design challenge should be about the hiring company’s own product. That’s just asking for free labor and it’s bad for even more reasons.