That smells a bit fishy. I think you've dodged a bullet. I have to be a bit cautious here, because our company does something similar. We have a little programming challenge that we ask candidates to submit. We don't use those submissions in production. We find it gives people with non-traditional backgrounds a chance to show their chops, and gives us some meat to discuss during an interview. The challenge probably t…
Personally I find the single best question is "what's your github username?". People who are on it and active are... well, actually I've only ever had one candidate who's actually been on github and she seemed OK. The majority of people I've seen haven't been much good (and have barely heard of github).
I agree about dodging a bullet. I think the OP did exactly the right thing.