Maybe ICANN should specify a shorter internal lab domain (There's already .local for your use, which I would think is plenty short, even adding a prefix), but I would most certainly say that given there's only ~50,000 2 or 3-letter domains, the price for one should be high enough to make an individual flinch.
If you just were lucky and registered a 3 letter domain back in the 90s, why is it anyone else business? Let it be.
I have got a 5-letter domain myself that I keep a website of mine that never worked out online mostly for portfolio and because I really like the domain name. I've no plans to sell the domain or free it so others can register, even though it could indeed be more useful for some other stuff. Well, if someday I want to launch a company, I might as well brand it with this name. For the time being, it's no one's business.
Squatting isn't just with the purpose of reselling. It's an overloaded phrase, from "living in someone's building illegally" to "Holding onto a good with the intent of depriving others of it's use, driving the price up (particularly if you control a large portion of the limited resource)", which are, in many ways, exact opposites (The hobo sleeping in an abandoned property and the landlord underutilizing that property so they can benefit from the scarcity of land are both "squatting") I'd say that the mild foresight that 3 letter domains are useful and then holding on to one because, even though you're barely using it, you don't want to give it up - Yeah, that's squatting. It's a minor dick move, though I'd say that dumb stuff like littering newspapers or not tipping your waiter is probably the greater offense.
I'm also fine with how things are now, because I don't have any illusions that ICANN as currently stands would put that additional revenue to good use, but I'd like to see this treated... well, I'd compare it to water rights, but those are broken just as badly.
There's damage to the internet from "evicting" people from these domains. Broken links, etc. Sure, that doesn't apply in this "intentionally unused" case, but... who's currently incurring what damages? Why try to squeeze more dollars out of folks with these domain names? I'm suspicious of ideas to replicate the physical real-estate model of pushing people out through raising rents that seems to just benefit landlords and the already-wealthy.
We are living in the Internet and names are cheap. If for some historical reasons (I'd say, maybe even related to artificial scarcity), .com|.org|.net got more popular than they probably would, this is fine. gTLDS (generic top-level domains) are here now, and if they don't suffice, something else will eventually appear.
No? Yeah at one point a lot of us used that one, but it was never official and has long since been eaten by mDNS. And with ICANN happily selling off whatever TLDs anyone wants you can’t count on anything unused and unreserved either. Local only DNS TLD use has been explicitly discouraged if anything, which has long been intensely irritating and argued over. Ones like .test are reserved but aren’t intended and don’t read as being for permanent deployment purposes on intranets. Official req has been to buy a legit TLD and use that.