If someone is unable to complete a task within a set time, but explains their thought process and what they tried, I consider that to be a completely valid use of their time. Even if they are completely honest and say: "This seemed too hard and I tried for the first 15 minutes and then got bored and procrastinated" that is also ok. We're all humans after all.
Its when someone spends their time on excuses and fobs that is really annoying and unproductive. Generally: most people will invent excuses. People that went to college (I went to college!) get really good at this since you need to invent excuses all the time to get past annoying social activities and classes.
In most cases, providing the space to fail and proceed allows developers to gain the confidence to be upfront. Of course there will always be those that don't get the message, or try to game the system. But they tend to fall really really far behind and it becomes pretty obvious that they're not doing well.