So, your idea is to punish players who made a character, chose a name they liked, but are for some reason not logging in on that character for awhile? How do you consider a character "unplayed"? Some people play their different alts according to their different moods, or any number of other reasons, and the idea of forcing someone to log in on any particular character "or else" would be a very fast way to kill the game permanently.
And the idea of "name-squatting"? What do you consider "squatting"? The fact that you wanted that name but someone else got it first? Sorry, but that is just silly. Someone chose a name, they tried it and it was available. Maybe they have issues keeping them from logging in on that one for awhile....I can think of several right off the top of my head: In the hospital for surgery; lost their job and can't afford to pay for Internet that month, or similar things. Unless they delete that character, the name is now theirs. Perhaps you should consider using a bit more imagination in your naming? Different spellings, or something like that. I have never once made a character and then been unable to come up with a usable name that is reasonably distinctive, even back when the game was Live and had been going for 8 years.