Add to your idea: Preventing people from hoarding domains, you'll have to "maintain" validity say every 1 or two years. After x amount of blocks the registrations decays unless it is resubmitted within said timeframe by the owners private key.

This is especially true for short domains. Value increases exponentially the shorter the domain. You don't want people "hoarding" all the X.bit XX.bit XXX.bit and XXXX.bit domains. They should eventually end up in the hands of those who make the most of the short domains. You could even make the registration fee inversely proportional to the length of the domain. Say if you simply need 1000 domains for your backend network setup, you can register those for next to nothing if they are say something like networkdomainexample1112.bit while you pay 100 times the fee for say btc.bit.