I think that this is a good strategy for hands-on instruction. You will then be present to help them over any hurdles they may have. I suspect that you quickly see who has and has not prepared by reviewing the information in advance. This is a teaching opportunity that allows you to guide them back to the material that they should have reviewed. Once they learn that they are losing the benefit of your guidance during the assignment, at least some of them will work harder to prepare in advance. However, if you provide them simple answers they should have known if they had prepared, that will not happen.
