For over 10 years we've had people do a paid ~4 hr take-home which is very similar to the work they'll actually be doing (here's a dummy codebase, add a few features fix a few bugs).
If they're not interested in getting paid to do that work now, it's a good signal for us that they won't be happy doing it when they're working with us. It's helped us find really wonderful people to work with.
Do they get to pair with your team on the take-home or are they doing it solo?
I'm not happy working by myself on features/bugs in a codebase that no one will ever. It's meaningless work. If that's the job you're offering, then you're right, great signal.
But I imagine at your company that you work together on a codebase that people are using. That the requirements and bug reports are coming from actual users if not customers. If so, then you may be discarding some good talent who might be better for your company. The ones who will push back on bullshit work because they can see it's not doing anything for anyone.
Paid take homes are probably the least worst way to suss out signal in today's hiring market. The only time I had better was when I just set up a nights/weekends arrangement with a company and just started ripping through real tickets. Ended up getting hired on full time and they cut me a check for a few thousand dollars up front. It was very nice.
If they're not interested in getting paid to do that work now, it's a good signal for us that they won't be happy doing it when they're working with us. It's helped us find really wonderful people to work with.