That definitely seems tough. Maybe shortening the project time to a couple days (over a weekend?) or a few weeknights would help. From the hiring side at least, the time investment would seem worthwhile, considering you're evaluating a potential team member.
I found some of the resources in this article very helpful, such as Stylate, which looks like it can quickly provide value for a specific aspect of your startup. In terms of making mockups before diving into making the actual product, the author is advocating doing that for gauging customer interest in the product. You wouldn't sell mockups of a product in place of the actual product itself.
Wow, not such a sad ending after all. It looks like they got acquired by Apple for between $40 million and $60 million; no wonder their shut down message on their website didn't state that they ran out of money or something. http://techcrunch.com/2013/10/03/cue-acquired-for-over-40m-l...
Sad to hear, as I had discovered them recently and was interested in the problems they were tackling. I guess this isn't a complete surprise, with their Twitter account looking inactive as of late.