That is the point. The difficulty of take-home assignment as a second screen is meant to increase with the number of candidates applied so that after this screen, you always end up with 4-5 that you can then interview in a meaningful way.
If only 10 candidates applied, take home could be a 5 min task. If 50 apply, you need something that will leave only those that are really commited to working at Kagi and ready to go an extra mile (and we may be looking for resourcefulness and determination as desireable traits, given how ambitious and difficult Kagi's core mission is).
Both can be true (they arguably did too much extraneous stuff, but didn't do what they were actually asked for).
Mind you, this is a pretty ridiculous take-home question, and I'm sure they lose plenty of good candidates to "life is too short" at this point.