The process seems geared towards hiring people right out of school since they'd have no expectation that such a candidate would be able to answer such questions. Am I right in thinking that it's easier to become a Googler by starting a company that gets acquired than by submitting to such a broken interview process?
No, not at all. At least it used to be so that when Google acquired a company, they ran all your engineers through their interview process, and if more than half didn't make it, they stopped the acquisition and the deal was off.
The justin.tv/Twitch people blogged about how this effectively made them a billion by stopping an early acquisition until they were worth much more.
(Or at least that is what I remember reading - I can't find the article right now, so maybe it wasn't Twitch)