I mentioned this in another comment, but yeah, I bombed the interview precisely because I understood the problem and its domain but failed to walk through my initial thinking process with the interviewer who was pairing with me. I was approaching it as a technical problem, not an evaluation of my ability to pair with peers - which was why I was underwhelmed.
Having said that - over the years, I now much prefer conducting interviews where interviewer and candidate walk through a problem, figuring out a solution together; they provide much more insight into a candidate compared to rote memorization/whiteboard tasks like "Implement a linked list". So, in the end, I've learned to appreciate their approach.