Could certainly happen, but there's a couple mechanisms that mitigate this:

1) The network will only allow you to bid on a name if it has been at least `hash(name) % 52` weeks after mainnet launch. Squatters cannot purchase all of the good names on day 1.

2) The network limits the total number of domain renewals that can occur each block. Eventually this will lead to fee pressure and make renewing 10,000s of domains expensive for squatters.

3) It's possible to atomically trade names for coins on-chain, so squatters that self-custody will likely do this to make selling their names easier. The names will end up with someone that actually uses it