In a recent interview I was asked to complete a couple of coding questions on a whiteboard. Both questions required a reasonable amount of code to complete. I didn't embarrass myself, but I did find it to be a difficult experience. I tend to type and revise as I'm going along, something which doesn't lend itself well to whiteboarding.
I've noticed other developers struggling in similar situations when I've interviewed them, so I switched to making sure they had a laptop to code on, with an overhead projector displaying the results for anyone wanting to observe the process. It represents a more realistic situation, and I've generally been happier with the results.
On the other hand, working on a whiteboard forces people to put more thought into what they're about to do upfront, which may be the point.
I'm curious to hear other perspectives on this.