Can you apply for a Thailand visa from abroad if you have already booked a hotel and flight?

No you need to be in the country you are applying for the moment you hit the submit button. Flying a few days into said country after applying poses a risk of rejection as a few embassies request an arrival stamp to prove current location.

Some people have left before getting approved to shave off a few days, but it is a gamble

What would you do if they requested an in person interview at the embassy

This question is asked every day - next time, use the search function...

No, you are supposed to be in the country you apply and also to wait until the visa is approved.

Sure, some people have gone back to Thailand and then exited and re-entered to activate their DTV, but you are not supposed to...

Why? Well for several reasons - two being that the embassies reserves the right to call you in for an interview if they see a need to do so AND there's been several reports of requests for additional documentation such as pics of all pages in the applicants passport (to confirm they are still in the country).

So just stay! What's the rush? - it's a 5 year visa.

No you MUST be in that country