I am actually broadly in favour of the Names of Residents in Second Life being a bit easier to deal with. Poor souls who signed up with "luckiboiii238" as their first name, and who then discovered that the Grid was really not quite the same as a Yahoo chatroom, should really be given some way to compensate for their previous mistakes.
Creating a new, supposedly unique username, and having a "Display Name", though, is Not Good. For almost all intents and purposes, the arbitrary "Display Name" will appear whenever speaking to someone, for instance in Group Chat (whenever that happens to work). Certainly there will be facilities to obtain the username of whomever you are talking to, but that makes almost no difference - seeing the name "Ordinal Malaprop" appear in chat results in the instant assumption that it is one single Ordinal Malaprop who is speaking. Only experienced residents will think to look for usernames, and they will still be annoyed, if not, hopefully, fooled.
Furthermore, this takes away the main advantage of the current surname system - to whit, surnames changed in availability over time, and nobody could now register as "Ordinal Malaprop", since the "Malaprop" surname expired some years ago. Oh, nobody can register with their username as "ordinal.malaprop", but they can come in as "ordinalmalaprop" or "ordinal_malaprop" etc etc, which again may perhaps not fool the experienced but in general is just going to cause confusion. (Correction: Apparently, such cheap trickery will be disallowed: see the comments on this entry.)
If a "username" is to be created - and there is already a unique identifier for every avatar, their key - it should be displayed at all times. Names are supposed to be identifiers. Allowing unrestricted arbitrary changes of names eliminates that value - no matter if hovering over the name in group chat might hint that the name is a fake (an irrelevancy). If one wishes to only see fake names, one should have to deliberately opt to do so.
Still, it is nice to hear that the Laboratory is concentrating on real issues of import.