One issue I could see with implementing NMC on top of BTC is future scalability. Specifically, when BTC blockchain gets huge, it would mean that the datacenters that store bitcoin blockchain information would have to also double as DNS providers. I think a NMC blockchain would be much much smaller in size compared to bitcoin, since transactions on namecoin are much less frequest, even if they may hold more data. So keeping the two separate would allow for many more smaller, independent DNS providers, instead of limiting it to just the few bitcoin providers we'll likely end up with in the future.
That's one area where Namecoin was very
weak. Its blockchain may have started out smaller, but its scalability is no better than Bitcoin's, and it'll eventually have the same problems (like all Bitcoin-based altcoins). But if your decentralized DNS doesn't include a currency, then old data about domain ownership can be more easily forgotten. For example, if you require that registrants renew their domains weekly, then resolvers only need the last few weeks of full blockchain data (plus headers to verify the chain). There may also be better ways of doing this that don't require frequent renewal. (You can also do this sort of renewal thing with BTC in order to reduce download requirements, but it'd be really unpopular.)
Running a resolver on a well-designed DNS system will always be pretty cheap unless Bitcoin's
network requirements become huge.
Could DNS be implemented as smart property on top of something like Mastercoin?
Probably, but I'm not a huge fan of smart property or Mastercoin.