"This dismissal of AI tools during the interview process meant we weren't truly evaluating how candidates would perform in their actual role,"
This is hilarious. So, then why focus so much on basic data structures and algorithms in the interview? Yes, you should know basic algorithms and yes, if you work on certain types of applications you need that knowledge but the vast majority of companies writes code to support their business or to build a product they sell. Most of the time you will use the algorithms provided by your SDK because usually they have been optimized over the years to work really well. Yet, a lot of companies focus in their interviews to just check how well somebody can implement merge sort, linked lists and other kind of data structures and algorithms just to say afterwards "here is our gigantic code base consisting of web controllers, database access code and business logic. Have fun."
None of the interviews I ever had tested how I would perform in the actual role because I do not need to implement a linked list myself in order to calculate a VAT to display the end price of a product to a customer.