You don't have to answer every single question in C. It's just that you're going to be much more likely understand a question e.g., "how do free() and malloc() work" if you know C. You also don't want to be asking difficult questions for the entire hour: I always prefer to let the candidate introduce themselves, warm them up with an easier question (to help make the candidate less nervous), add a challenging twist to the easy question, and then asks the most challenging questions.

Understanding systems matters for more than systems levels jobs: perhaps you don't need it if you plan to work on CRUD apps in a financial organization, but if technological aptitude is an enabling factor for a company you're applying to (that's the case for companies in Silicon Valley: otherwise there's no point to being in the most expensive part of the country), you should understand more than your segment of the stack (that goes both ways: systems programmers should still understand HTTP and high level languages if they work in a web services company).