There are a number of API calls that leak DNS queries, such as isInNet. If you have optimized a PAC for performance, you absolutely would avoid this from happening, but if you're evil and you want to leak dns queries... then whatever. I would add a filter to include only the required transactions (i.e., url contains samltoken or something).
On the flip side the article isn't correct about IE truncating hosts, what it does is cache the PAC results on a per-host basis, so only the first URL a client accesses to a host will get processed.
The other main threat of the WPAD is that it affects Zones. In a corporate environment, things that go through the proxy server are assumed to be on the internet and in the Internet zone. Things that go direct are assumed to be Intranet Zone, which has reduced security posture. An evil WPAD that just returns "DIRECT" all the time will lower IE's posture for all sites to Intranet Zone, enabling IWA (making credential harvesting possible), reducing warnings on active content, etc.