Has anyone thought about how this will be for a new user? Say someone has the username "mildew1990" and the display name "Julius Caesar Jones".
When he walks into a store with me, the store greeter object will say, "Welcome to our store, Vesper Pinden" and "Welcome to our store, Mildew1990 Resident".
People being people, he'll get called "Mildew" even by people who see both names.
He'll look at older residents, who have one good name over their head, and at himself, who has one good name and one dopey name, and he will go to the forum and ask, "How do I get one name over my head?" and the only solution will be "Change your display name to mildew1990".
Just a suggestion: Don't throw out the old sign-up method. It will be nice to have as a fallback.
Think about the experience with Viewer 2... the display name solution might be absolutely perfect for some people, while others will long for the old way.