The short story:- If you are asked a tough algorithmic/puzzle question during an interview, whose solution is already known to you, do you:-

1. Honestly tell the interviewer that you know this question already? -- this could result in bursting the interviewer's ego and him increasing the complexity level of the subsequent questions.
2. Do an Oscar deserving performance and act as if you are thinking and trying hard and slowly getting to the solution? -- depending on your acting skills, could majorly impress the interviewer making the rest of the interview easier.

Long story:- OK, this question comes as a result of what happened to me in a recent telephonic interview that I gave - the interview was supposed to be all algorithmic. The interviewer started with an algorithmic question which I had luckily already seen here on Stackoverflow. The best solution to that problem is not very intuitive and is more of a you-get-it-if-you-know-it kind. Now, just to not disappoint the interviewer too much, I took a few seconds as if I was pondering on the problem and then blurted out the answer which I knew too well having read and admired it on SO already. But I guess that gave it away to the interviewer that I already knew this question and since then, he started asking me for more efficient solutions and I kept coming up with approaches (even if not correct or more efficient, but I did touch a lot of different data structures and algos) and he kept asking for more efficient solutions and generally seemed put off by my initial salvo which was unexpected. What should I have done?

Cheers!