I suppose it's a lot like a pitch situation.
That's exactly what it is...and how you deal with it will tell the client volumes. First off, you have to ask yourself if the "project" is something you would like to do. If not, decline politely saying your busy schedule doesn't allow you the time to participate but you would be happy to consider a future project if your schedule frees up in the future.
If you decide it's something you do want to do (meaning you've got nothing else going on and it would at least give you the chance for getting a new client), set some ground rules...clients are always looking for way to do more and spend less. If you can come up with a creative way of doing so, you may have an advantage against your competition. Back when I did advertising work, my ability to create my own model props and build sets was a competitive advantage...I could come up with creative solutions that leveraged my own skill-set that other photographers didn't have.
If the client is simply looking for "free" creative ideas that they will then have their chosen photographer execute, I agree it would be very unlikely that you'll end up with the job...in which case, ask yourself can it be a useful learning experience? If so, play the game. If not, decline politely saying your busy schedule doesn't allow you the time to participate but you would be happy to consider a future project if your schedule frees up in the future.
The bottom line is, is there anything in it for you? If so, give it a shot...if not then decline politely saying your busy schedule doesn't allow you the time to participate but you would be happy to consider a future project if your schedule frees up in the future. Notice I keep coming back to that phrase...no need to burn any bridges that you may sometime want to cross.