We only expect you to make what is possible in 2 hours, and we've seen a bunch of similar exercises. It doesn't have to be poor quality, just basic. Usually the UX isn't expected to look nice at all either.
So in 2 hours (according to the article, not this comment) you expect a candidate to deliver a functional reactive single page javascript app, with localstorage offline storage, searching (perhaps with filtering over a "category" model also), responsive, ideally with some form of test coverage & tested on multiple platforms.
I have a long way to go it seems! It would definitely take me more than 2 hours to do that to a standard I'd be happy with. And there's no way I'd submit "what I had" in 2 hours if I could sneak off and spend more hours of the weekend doing it & return something polished.
Do you penalize people who give something "too good" or query them on whether the _really_ only spent 2 hours doing it?
I have no idea, since I'm an iOS dev, not a web dev. We've seen a lot of these coding exercises btw, but the ones I've done have been onsite, so there is no way someone could of spent more than 2 hours on something. Usually the standard is if your able to complete the exercise, that's pretty good! I've only seen tests written once or twice, mostly because there was no time. You also see a lot of shortcuts due to the time constraints. You go through and explain your code, so you can point out 'this is a shortcut, normally I would do XYZ".
Usually when someone makes something 'too good', it usually means they've leveraged libraries that they already know. If they make a lot of code, I know they probably spent more than 2 hours. By making it a weekend project, maybe they are subtly hinting that better candidates will spend more time on it, which I think is shitty and one of the reasons why I don't like homework questions.
I'm assuming for all of the things you've just said, it means you are using libraries that make a lot of those things one liners. Like read/write local storage, search a data struct, reactive UX changes, etc.