Agreed. I once interviewed for a job within the company I already worked for (crazy bureaucratic process aside), and I was being interviewed by my existing boss, and a colleague that used to be on the same team as me.

I was asked a question about ASP.NET ViewState which I drew a complete blank on. I just couldn't wrap my ahead around the question because of nerves. It was only when my boss reminded me that this was something I had actually taught him and my colleague only 6 months ago that my nerves cleared, I relaxed, and then I could suddenly think clearly again.

The interview process creates a dynamic relationship between interviewer and interviewee that never exists between colleagues and bosses.