Keep it relative to the work environment
Be honest with the person as per the style of the work place. Treat that person as you would a co-worker for giving the same answer. If there is a zero tolerance policy for ignorance of must know knowledge, then treat that candidate accordingly.
Far too often businesses represent themselves inaccurately during the interview process, by showing politeness, patience and very low technical expectations that simply do not exist in that work place.
It can be anything simple from offering a cup of coffee when employees aren't provided free coffee, or not making a big deal about for loops when an employee would be disciplined for making such a mistake.
Don't bring double standards into the interview, but understand they're not an employee. The standards apply but they cannot be enforced.
Asking a community how this should be handled is only going to give you answers relative to their standards. You can pick the nicest and politest technique to handle the interview, but is that really showing the candidate the company they applied for?
As the saying goes "keep it real".
