Unfortunately, this is just the way it'll always work. Take land, for example: It's all claimed by someone already. And a lot of it isn't even being used. It'd be really sweet to use a bunch of it... but there are squatters. :/
The problem at the moment is that it is essentially free to squat on millions of domains. It's just a matter of getting organized, using grace periods, advertising income, so you don't actually have to pay any money to hold millions of domains.
That can't be right.
Even if you set the registration price to say $1,000 I think you'd solve a lot of problems. People wouldn't just buy 20 domains just incase they might put something on 1 of them.
Sure, you'd still get people squatting on names, but to a far lesser extent.
Currently, people just buy up a ton of domains thinking "Wow I'd like to develop that someday". It's antisocial, but it's encouraged by the nominal price of registering domains.
So this way registrars will make obscene amounts of money for doing very little rather than squatters? Don't you think that's throwing the baby out with the bathwater?
There are a ton of domains that shouldn't be worth $1000. Take my name. There are half a dozen domains I could park that no one but my immediate family could want.
It costs anywhere from $8-15/year to renew a domain depending on the tld, so it's pretty expensive to sit on them. I thought this would be a good way to put them to use within the hn community before I set them free to the crazies of the domain registrant world.
I agree with Steve. The people with the extra cash will just park on it which will drive up the price they will charge you to buy it. There is no clear cut solution to this problem, it will be around as long as the domain model is what it is (but then again how would it change?).
The closest thing I can come up with would be to in-act some kind of domain activity monitor (use it or loose it) type pattern, but I don't seriously think this would ever happen either.