[DarkWiiPlayer]

DNS should have been UTF-8 from the beginning; that would have been a good solution. As things stand, slapping punycode on it is a terrible solution to a dumb problem.

But then again, when you invent something, you decide how it works, and the world could just re-invent a more international version of DNS but chose not to.

Also, ASCII is still probably the best charset to use, if you have to choose one; it can represent most possible sounds in some way and symbols represent single sounds (as opposed to, for example, chinese characters). It's very widely used (as opposed to, for example, the greek alphabet).

So yes, limiting DNS names to 26 latin characters and 10 arabic digits was probably the best option at the time.