We gave candidates a heads up before the interview that they'd be working on a live coding question, and that they should familiarize themselves with editing code over SSH. Some candidates felt uncomfortable with this, and we were able to make alternate arrangements (e.g. setting up VisualStudio locally on a Windows machine).

During the interview, the interviewee worked on the problem live, and the interviewer stayed silent, except for questions. If they didn't come up for air after 30 minutes or so, I'd check in and see if they were stuck, offer help, etc.