I think you're generally being rather kind on the not-yet-employer here, but I have one specific point: giving up a whole day of your labour for free for every interview is not a sustainable strategy.
I don't know what the average number of interviews is prior to taking a new position, but if they all last a day, that is a lot of work for each applicant to do without getting paid, and it's a lot of work from a lot of applicants that the prospective employer gets for free.
Everyone is taking a risk going through a recruitment process, but typically it's already stacked heavily in the prospective employer's favour as they set the terms of the interview and generally it's held at their choice of venue, using their preferred facilities, and with minimal overhead for their existing staff.
Throwing in working for free on the prospective employer's real project, and IMHO this tips from unbalanced to downright insulting. If you want to hire a professional, give them some professional courtesy and treat them as such.
(I would almost certainly have ended the interview in that situation as well, though perhaps not with quite the same choice of words. But then this sort of one-sided relationship is why I choose not to work for anyone as an employee any more and instead run my own businesses, so I do have a well-established bias here.)