I see no problems with that. A passport is the internationally recognised 'gold-standard' document for proving your identity. It seems only fair that identity checks are carried out before it is issued.
As JAJ pointed out, it isn't unusual at all . I remember when I first got my Indian passport ( way back when !), a policeman visited and conducted an interview to establish my bona fides.
The interviews are not meant to be designed as an inquisition of immigration status but merely meant to establish that the person whose photograph goes on the passport is really who they say they are ie. proving identity. Since most other immigration documents do not contain pictures, an interview is the best way to establish the veracity of the identity being claimed.
The fact is that there is no better way of doing this and this isn't unusual. Identity fraud is widespread so before issuing the ultimate identity document, some questioning is hardly disproportionate. With regard to not remembering personal details, this is going to be an issue every time you are asked to prove your identity. Besides, interviews will have to be designed to cater for a certain proportion of incorrect answers as it is natural. However, it is entirely sensible that the onus should be on a person applying for a passport to demonstrate their identity beyond reasonable doubt.
Why would I, as a British citizen, trust that interviewer with my identity details, when they do not believe me, in the first place? Of course, i know this a moral question though , but neveretheless, a good question.
You currently trust all staff processing your passport ( immigration, banking , employer, passport agencyetc) with your identity details and nothing has changed. Exactly the same issues apply when you fll in your details and send your application off by mail. The data on your passport (i.e identity details) theory could be compromised by rogue staff. Nothing changes just because one more person from the same agency is involved in issuing you a passport. All that is different is that instead on relying on the not very secure countersignature mechanism for identity and photo verification, they will use a personal interview.