First comment ever on this site, it's good to be here.
I think asking should be a last resort in the sympathy vs Solution dance.
If I know the person well, I can usually tell which they want, based on how fast they talk.
If I'm in doubt, something like "Have you tried / thought about [Cool Solution]?" will tell me what I need to know.
Either the other person picks up on it and runs with it toward solving the problem, or they run deeper into emotion.
This seems to rest on a model of people as shallow, scripted puppets.
"Do you want my advice, or my sympathy?" is really asking: "which word-strings are your password today?" or "which kind of standard social script do you want to play out today?" or "can you help me navigate your NPC conversation tree today?".
Personally, when someone tries to use this approach on me I am inclined to instantly write them off and never look back. I'm not saying everyone is like me but you might want to be wary of what kind of people you are optimizing yourself for.
I read "response" much more broadly than you do. I'd translate the question as something more like, "What sort of currency are you currently lacking?" or "What sort of aid do you currently require?"
Imagine someone says, "Work has gotten really overwhelming." There are many things this could mean, and many ways you could potentially help them. Perhaps they suspect they are making a strategic error in their work, and you can help by analyzing strategic options with them. Perhaps they are in danger of a bucket error suggesting that they are a bad person for letting work get overwhelming, in which case you can help by providing evidence that you don't think they're bad. Perhaps they are tired, and you can help by bringing them to a state that's more restful. If you don't know which of these things is more likely, asking is a pretty good shortcut to figuring it out.
I initially read it in the same way you did, however I also think SquirrelInHell has a point. But I would say the place where he's going wrong is sometimes (possibly most of the time) people don't know what it is they're seeking from a conversation. A lot of people don't know themselves well enough, so having been promted with that question allows them to properly introspect, perhaps.. but I do agree that password based conversations are frustrating.
I would say that even if you're right, you're still wrong. Let me explain: My perception is that the advice given in the OP is pretty standard, and I have received it quite often myself; both (1) the idea that sometimes people are looking for advice, and sometimes they are looking for sympathy, and it's useful to know which is which before responding, and (2) less frequently, the idea that you should explicitly ask them which one.
In light of that, my perception is that you are saying "anybody who follows this script that a huge number of people have been credibly advised to follow, I would write them off and never look back." That seems like a bad approach even if the script they're using is bad for some reason, because it's going to result in writing off huge numbers of people who took reasonable advice, who probably have nothing against you, and who you probably otherwise have nothing against.
More generally, it is my perception, as someone who thinks a lot about communication styles, that there are two opposing schools of thought on this particular issue. If someone tries to reason about how to communicate best, learn the most effective advice and scripts for communicating with people, and try to apply it, the two responses I see from someone who notices that this is happening are (1) to appreciate the extra effort that the person is putting into communicating, even if the result didn't quite land; or (2) what seems to be yours, which is to treat such an attempt as somehow artifical and offensive, and to choose to be offended by it.
I think that in general, there are too many different communication styles in the world for most possible pairs of people to be likely to communicate successfully by only using their own style / instinct / intuition. I think that trying to learn about scripts that will help you successfully communicate with others is a good thing, which makes successful communication more likely. So I think that people who choose (2) above are mostly dooming themselves to be miserable (unless they stick to communicating with people mostly just like themselves.)
A friend once told me a story of how an interaction with her mother changed her perspective on communication. She said that she had been going through a break up at the time, and was venting to her mother, when her mother responded with "Do you want my advice, or my sympathy?"
Often times, when we have something important to talk about, we consider how we expect the other person to respond, and talk to people who will respond the kind of way we want. We may choose to speak to someone who we know can keep a secret, or who gives good advice, or who will say nothing at all, only listen. Sometimes we may turn to someone who won't want to talk about it at all, and will instead distract us from our problems. This can be great if you have a number of close friends who reliably respond in different ways, and you are able to predict this and make use of it. However, not everyone is in this situation, and so instead, we end up with interactions where people are not getting their desired responses.
Take an interaction between example-humans Alice and Bob. Alice's goal in the conversation may be to be heard, whereas Bob may want to feel validated for what he says. If Alice is talking, Bob may point out something or make a clever remark. Instead of validating Bob, Alice feels like she hasn't been heard, and is quiet in response. Now Bob has not been validated either, and they are both sad.
Sometimes, a person's desired response can be inferred. This is like how generally, if someone tells a joke, their desired response is for you to laugh, or at least acknowledge that the joke was funny. However, this isn't always easy to tell. Some of us may know the best thing for our best friend in a time of stress, but we don't always know what's right for someone else, even if we are close. Often times we will assume that what works for us will work for them, but then there is a risk of emotional damage. Trying to talk about a situation that someone wants to avoid thinking about may exacerbate the problem or cause tension between two people. Usually, it is better to ask a person what they need -- like how my friend's mother asked her.
Going more deeply, some people may tend to have common desired responses, in general interactions. Think of the person constantly telling bad jokes, excited to hear people groan and laugh, or someone who loves giving advice and recommendations. The first of these two may love the validation they get from humor, whereas the second may want to feel helpful, and be appreciated for it. This goes far deeper than a single situational interaction; these people want these kinds of responses in everyday conversations. This may even tie to how we want others to see us (clever or kind) or how we most enjoy interacting with others (playing with ideas or working with people, receiving attention or giving it). A person's desired response may not always be the response that feels right, or the response that we want to give -- and that's perfectly okay. But it does give us insight into what drives them, what is important to them, and who they are as a person.