What would you do?

As an owner of multiple business's I would tend to like this "theoretical" person, for the job, though I would also almost expect them to be a handful. (The reply was pretty ballsy)
This very well could work for the business, just remember the boss would be the one with the last say and then it should be final.
If this person can/would/does control their tendencies to point out imperfections without an "In your face" attitude, then they could be an asset in the position they applied for.

They might have just used the example they were given to prove their capability in the position.
I would suspect this to be the case, and would have to at least give this person consideration.
Given any attitude, I would pass. (we don't want to cause more work for ourselves, but less)