I got an interview in 2006 for Microsoft. I typed my C solution with Notepad via share screen over DSL. The code is "to find out the depth of leaf nodes in a binary tree and find out which leaf node is the shallowest/deepest" or something like that. I did that in 20 minutes and return solution to find out depths for all leaf nodes and sorted them by depth. And the interviewer saw how I worked during the session and laughed I was the first one to solve the problem in that way and much better than what they expect.
At the other hand, I got interviewed in Amazon around the same time. I completely choked on whiteboard because I did not prepare for session before like that and I still had a jet lag due to lack of sleep during flight in previous night. Then I got another interview in Bloomberg and I complete couldn't write code with pencil and paper.
My mind flows when I typed but chokes when I worked on paper/whiteboard. I guess the fluidity of editor is the key.
Later when I interview software engineers. I tried to let them to have a computer so they can write code during the session. I feel much better grasp for their potential and habit during the session than whiteboard and pencil paper test.