Imagine if this were augmented with onion routing capabilities, like Tor. Each address in the path would be encrypted such that only the immediately preceding router can read it. That way, if an attacker intercepts a packet in transit, they can only determine the next hop address, not the final destination.
Yes, yes, this would add a massive amount of overhead and complexity, and it would probably take decades to get implemented.
But I've been wondering what the next step is after encrypted DNS. Encrypted DNS prevents an attacker from knowing which domain name you're connecting to, but they can still see the IP address, and if there's only one site hosted at a given address, that's all they need. So to achieve privacy you need many unrelated sites to be hosted at the same IP, i.e. you need a big CDN. But that risks overcentralization, and it means you have to trust the CDN. What if there was a way to hide the IP address itself?