 A friend of mine recommended How Would You Move Mt. Fuji? as a great book to understand some current interviewing and hiring methods (and as a great read if you love puzzles). Major software companies, such as Microsoft, have since modified their approach somewhat, and now favor more realistic software puzzles over the tradional "Mt. Fuji"-like puzzles, but the book provides interesting insight into interviewing strategies.
One of the tenets explained in this book is the notion that hiring bad people quickly corrupts an organization, and that it's better to miss good candidates than to risk getting bad ones. I've certainly seen this happen, but I think it's due to more fundamental causes rather than simply hiring a bad candidate. There's an interesting discussion on this topic at the Bnoopy Blog, maintained by a founder of Excite and JotSpot. I like the comment there by Doc McClenny. He makes several good observations.
For example, I have seen team after team of new hires reflect seemingly irrelevant attributes of the hiring manager(s), such as height, weight, extracurricular interests, etc. This is a topic I hope to analyze in the Guide to Life project. I believe it is in the "Mt. Fuji" book that scientific studies were discussed that seem to show that there is no statistically significant difference in judgement of a candidate whether one gets to observe him or her for 10 seconds or gets to observe him or her for 6 months. Finding a suitable job involves finding a suitable team as much as being technically competent.
As a crude example, if you are an generalist, you will probably be most faulted in an interview by a specialist, and if you are a specialist, you are likely to be faulted by a generalist, although the generalist will tend to be more understanding of specialists, and the more experienced the specialist, the more understanding he or she is likely to be of the value of other skills.
I have personally seen great candidates do very poorly in interviews, and vice versa, and I think there's a huge business potential in providing better employee-employer matching services. Good possibilities that I've heard of are, for example: personality testing, having candidates go through a sample day's or week's work, making use of career-long employee "managers," much like those used by actors.
Meanwhile, leveraging existing networks and networking services, such as LinkedIn or Ryze can provide incremental improvements over more traditional networking, head hunters and recruiting professionals.
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