@ReaCaer: You bring up a good point about using the desire/plot of the game to mask (or explain) the limitations. Another way it could be done, is by saying you are some entity that is "possessing" or "inhabitting" the player's avatar. I.E. that avatar existed before you joined the game, and thus already has a name. (This also conveniently explains why he's already middle-aged when you start playing, instead of a newborn. It also explains why inbetween gaming sessions the world moves on (you're not 'inhabitting' him at that moment).

The background of the game can even make a pre-given name actually be enjoyable. (Imagine when "creating" your character, there already exists seven or so pre-generated characters, and you just choose one to become your "host" (henceforth, that character is the one you play). Done wrong it could decrease immersion and attachment to the avatar, but done correctly, it might actually increase immersion and attachment.

Although a pre-approved list is the easiest way to keep names congruent with lore, I believe that such a list would negatively impact the player's attachment to his or her character.

The best way to address this issue is a variant of the OP's proposed option b. However, because it is possible for the player to feel overwhelmed at the prospect of creating their own lore-friendly name, I believe that it is best for the menu to guide the player through this process.

Let us use Skyrim as an example:

They player has chosen an Imperial male during race customization. Now it is time to choose a name.

The player enters "Limbhacker."

A menu reads:

"'Limbhacker' is not a valid name. Imperial males use names consisting on one or two long syllables with conventional endings. These endings are: -us, -ius, -on, -o."

The player enters "Limbhackarius."

"'Limbhackarius in not a valid name. Although you have chosen a valid ending, there are too many syllables at the start of your name."

The player enters "Hackarius."

As we can see, the system is not perfect. It would have been much better for the player to enter a name like Valerius or Mardonius, or even Claron. Hackarius, however, is much more lore-friendly than the player's original choice. This system allows the player to maintain a significant role in their character's creation without seeming too restrictive.

Recent controversy over Diablo III, however, has me wondering whether or not restrictive RPG naming is a good idea at all.

[color=#282828][font=helvetica, arial, verdana, tahoma, sans-serif]

[background=rgb(250, 251, 252)]RPGs therefore, should not be called role-playing games since the players don't role-play[/background]

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Sorry, I just got this bizarre image in my head of a conversation, "So what kind of games are you into?" "Oh, I play a lot of Gs. They're like RPGs without the RP."

Terminology aside, I'd agree, and guess that the majority of all MMO players today don't want to RP. One of the goals of this naming system (which is part of a bigger plan), is to gradually re-introduce RPing in structured ways. If the world can react to you and learn your name, it is essentially doing a little RP for you. With a naming scheme that simply avoided blatantly lore-unfriendly names (brand names, swearing, l33t), instead of allowing only 100% lore-friendly names, I don't think player's would be too upset.

Now for locale and romanization. Most languages today are capable of some form of romanization to english. As it just so happens, this is easy to justify because the players' characters are from Earth, so non-english names are to be expected.

now heres a idea what about morping the players name like the player would name there toon lets say undeadlord then you lore system would take that and convert the lettering in to a new language that fits the lore this keeps two things you have a name that fits the lore and the palyer also gets to choose there own name and can be identifyed as both so if the player has a firend thats looking for him/her they could look it up either way
example

toon name:
player types in: undead
toons lore name: nem?tvi

and can be dispayed as both or players option
just a idea to toss out there

now heres a idea what about morping the players name like the player would name there toon lets say undeadlord then you lore system would take that and convert the lettering in to a new language that fits the lore this keeps two things you have a name that fits the lore and the palyer also gets to choose there own name and can be identifyed as both so if the player has a firend thats looking for him/her they could look it up either way
example

toon name:
player types in: undead
toons lore name: nem?tvi

and can be dispayed as both or players option
just a idea to toss out there

That's certainly interesting. It makes me think of Japanese. Japanese lacks a lot of sounds and phonemes of other languages, so when they take a foreign word and try and put it into Katakana, it usually sounds somewhat like the original, but still very clearly composed of standard japanese syllables. In that case, "HaxXxor might even become something lore-friendly, like "Hashore". "ToeSmiter" becomes "Joe Schmidt", or the closest possible name that makes sense for their race/class. Likewise, even other locales might have a different lore name. A username of "PantelonesDelFuego" might become "Patrick F. O'Niell", or something.

An interesting idea. I could actually envision that working if:
1. The algorithm result sounds pretty close to the username (or even better, gives players a range of 'close' options to pick from at startup)
2. The lore name doesn't ever sound stupider than the original
3. Players are still welcome to see each other by their username or lore name, NPCs refer to you by your lore name only. If you get a statue built after you or something, it'll be your lore name that's displayed.

Nifty idea, I wonder how a playerbase would react to it. Cool or still restrictive? I'd think cool, but I'm not most players.