I don't know that I'd agree that it's a "very, very poor choice" but I can see how it would prevent Mastodon from seeing more widespread adoption. If widespread adoption isn't their goal, then it really doesn't matter though, and as you said, they made a tradeoff. I can definitely see the benefits of both ways of handling users.
By all means, enlighten us to the better one. It seems like they made a tradeoff here, and one that’s most in line with keeping everything distributed.