Before City of Heroes went free-to-play, I would have agreed with you. The problem now is that everyone and their mother can create an account, potentially fill it up with 1,000 characters, take a lot of valuable names, and then disappear.
I've already come across four different triple-boxers. People running three accounts simultaneously. That's the potential for three thousand names.
Given enough time, it's going to get to the point where the only available character names are B0b12x34.
Near the end, didn't they implement something that would free names up on accounts that hadn't been used in X amount of time? Perhaps a "character hasn't been used in X amount of time and the name becomes free again" type scenario?
I remember them doing so. A time limit would be good. I think 1000 character slots is way too generous too.