I just got a job this week and my first interview with the hiring manager went very poorly in terms of my knowledge. However, after those questions were out of the way, we had a good talk and I surprisingly got another phone interview. From there, I did well on the technical questions and etc... got an in-person and did well there. Now I have a job with them.
So here's the way I see the whole "what are they looking for" question. The answer is it depends (i know nobody asked me

). I've had phone interviews where I nailed the technical questions but I guess just flubbed or talked more than I should have. For those, I didn't get to move on.
However, I had another phone interview that was strictly a list of computer science questions and I got like 14/15 right. It was with the VP of Tivo actually and he told me that they'd be bringing me in after we were through with the questions.
So for the job I recently got, there were actual major down times between each phase. There was a month between my tech interview and coming in for an in person interview. On the other hand, Tivo moved relatively fast. On another hand, jerk recruiters would just drop contact with me after tech phone interviews. So I'm just trying to say it's always gonna be different and there's probably nt point in even thinking about what the interviewer "wants" because it differs so much between everyone despite what those stupid "interviewing professionals" want you to believe.
I don't even think anyone has read my cover letter during my whole interviewing process at any company. I was consistently asked questions that were specifically answered in my cover letter. But them "how to get employed" articles love to stress how damn important the cover letter is. Now I'm not saying it isn't for certain positions and professions, but yeah I think it's a better idea to not listen to those sites and do what you feel is right (I'd still write cover letters despite my experience). Obviously in Computer Science and Engineering, people give less a crap about the formality and what not.
So if I have any advice for those still looking for a job... don't put too much stock into all these sites that provide you with information on the interview process. Likewise, for at least you computer science guys, don't spend too much time with those interview question samples. Through my whole process, I was once never asked anything remotely close to those questions.