Two or three years ago I was doing an informational interview, trying to move from a QA job to a developer job, and I mentioned to the guy that I used assembly code almost every day. He guffawed and said I was full of it, but it was true -- firing up a debugger and stepping through assembly might be pathological on the desktop these days, but when you're investigating a failure on a back-end datacenter machine that's running some interim build that's impossible to find matching symbols or source for, probably over a KVM...
I don't think it's unreasonable to differentiate between reading assembly produced by a compiler and handwriting assembly. I do the former several times a month and the latter almost never.
It's never reasonable to laugh at someone you're interviewing. Too many so-called engineers treat an interviewee just as a captive audience to brag about their own skills.
Hell no. I was a dead man walking in that interview. When I was trying to transition from test to dev, half the people I interviewed with didn't even ask me technical questions. I had one interviewer show up half an hour late, spend the next 25 minutes trying to convince me to stay in test, then (literally) give me five minutes to whiteboard a linked-list problem in C++, and his feedback to the hiring manager was that I was lacking coding skills. I eventually got into a dev position, but it was it was an utterly medieval process. I wish I was kidding, but my take on the whole get-a-dev-job scene right now is that you have to be (a) young, (b) skinny, and (c) the same race as the hiring manager and interviewers (I shit you not). After that comes coding.