Edit: I know this comment is unpopular, but every craft industry does work like this to some extent. As a programmer you have a portfolio, and all else being equal those who spend their free time coding have larger and more impressive portfolios. That's the career advice you always give someone on getting their feet into the industry: code more on your own.
In fact, I think a quality CTF could level the playing field, since each candidate could be judged on their relative abilities (how far they can progress through a game that adapts to their prior knowledge). Moreover, one could offset the time commitment by paying candidates to do the CTF. Certainly paying people a decent wage for 6 hours is worth the benefit of hiring a better long-term candidate. There are all kinds of ways to fix the problem.
I would have expected at least some experienced candidates to drop into that "top tier" of people. What's up with this?
Looking at the first page of the Hall of Fame, I see big names like Alex Sotirov, Russ Cox, Ricky Zhou, Ludvig Strigeus, and many other familiar names/handles usually seen at CTF events. There are also many unknowns, which I suppose was Thomas's point.
This accumulated advantage you describe is present either way. The length of the interview or CTF process is not going to change this.