It doesn't seem an unreasonable assumption.
Having them work outside of business hours (isolated, no real time communication) on an standalone project (because self-onboard on a large and complicated project isn't reasonable) wouldn't really be a representative test of if they can work in a team and on a real project. At that point you are really just paying to solve a larger coding test.
> It should be possible for most people to fit that in around their current employment.
I highly doubt that most people would be able to fit ~40 hours of work on top of their normal work schedule. I'm single and have no particular obbligations, and I would still struggle. No way a parent of a young child or someone who has a dependant parent/relative would be able to fix that much amount of work in their schedule.
And even if someone manages to do 2 full time jobs for a week, would their output really be representative of their skills? I certainly wouldn't want to be judged on the quality/quantity of my output when working late nights after 8 hours in the office.
I can start working for you - even if it's just for a week - only after I've quit my current job. So working that week before a hiring decision is simply not an option, even ignoring all the issues of time availability.