Whiteboard coding is good because interview questions are not about specific 100% solutions to complex real-world problems like programming usually is. Interview questions are about general problems whose solutions will fit nicely onto a whiteboard. You lose the ability to get realtime syntax highlighting, but you gain the ability to have multiple trains of thought, the ability to draw diagrams and arbitrary symbols, and the ability to point at things as you explain your thoughts to the interviewer. Do you really enjoy it when someone comes over to your laptop to ask you a question about code? Now imagine that for four hours in a row. That's what a laptop interview would be like.
When I was interviewing at Google, someone asked me a question that required me to remember some math. I did not remember it, but I knew how to derive the answer I needed. So I went to another whiteboard, talked my way through the sub-problem while drawing some math symbols, and then transferred the answer back to the original problem, halfway completed on a different whiteboard. Try doing that while hunched over your laptop.
I agree that this process is nothing like the job you're interviewing for. That's because it's an interview, not the job. We try to get a picture of who you are and what you know in a few hours, and that's just not enough time to let you loose with a laptop to see how you approach real-world problems. Not to mention, real world problems don't often involve much "computer science" knowledge. But you still need to know that so you can confidently attack problems that venture into that area.
And largely, the process works. There are very few programmers at Google that can't program. If I have an idea, I can explain it to pretty much anyone, and get good feedback. At other jobs I've had, I've had to explain thing like arrays to coworkers. That means I'm not going to get any feedback on my complex idea, and that sucks. Google is not like that, because we filter those people out at the interview.