Programming on paper opposite an examiner with a stopwatch is indeed unrealistic. I don't disagree that FizzBuzz is crazy simple as a programming challenge.
I agree as well, which is why it's very important that you don't do that as an interviewer. The important thing is to check if the applicant can write a little bit of code from scratch, not if they can do it on time, in front of a big audience, without errors, with extra stress added on top.
And it sounds like the OP did it in an ok way, and didn't scare away any great programmers, which makes his conclusion pretty valid, that 60% of his applicants simply weren't capable.
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