Hmmm...compensation is a good point, and I don't think I've gone and sponsored any legislation, just quite yet.

But DN squatting and owning a small house on a large primo parcel of land aren't quite exactly the same. If you squat, in the sense that you hold a memorable DN but you don't put much of anything on it, no one visits it, etc (which admittedly might not be Katie's case after all), then what tangible harm do you suffer, if you are bounced to a slightly less memorable DN, on which you don't put much of anything, which no one visits, etc? It isn't like a house at all. There's no hardware to move, etc. The substantiable harm is very slight if at all.
In a case where person (A) would provide much more compelling value to the internet community than person (B), in the sense of more traffic, more content, and not only would do so immediately, but there was no evidence person (B) ever intended to do more than squat, then it doesn't seem like such an unfair shake to me if some governing body were to make such a call, and trade the domain name to person (A) for some nominal compensation to person (B), for costs of updating code, etc, and a replacement domain name....
But I do see your point. I just think, in the balance, this is not a pure issue of free speech or maritime-esque property rights. Governing bodies for the net, whether national or international, should have some sort of economic duty to maximise benefit, in the same sorts of senses that they do, when they buy out houses for highways and other public development.