I don't like it. But whether I'd walk away depends on what kind of company it is, what kind of challenge it is and how desperate I am. If its a big company, you often have to jump through some arbitrary hoops to get to the end. A lot of times its because some rules they have and have to follow. Sometimes the challenge is set up in such a way that its clear its not free work and doesn't take you long to do. In the end if you want it bad enough, you go through with it anyways. Ive done that, wasted an embarrassing amount of hours on a few such challenges and long live challenges and interviews, only to not be never called. One of the things I learned from this is that its all an unfair game and lying, cheating and stealing is not only ok, but expected.
Luckily I haven't been on the market for a few years.