I'm not a big fan of censorship, but I don't think was this what the nickname system was meant to do: http://warlight.net/Profile.aspx?p=192568291
It becomes cumbersome to refer to this person. There are of course ways, like the one used in the subject of this post and just calling him by his color in a game, but I still think this is nothing but an attempt to confuse. There are other ways to confuse your opponent (like choosing a color close to that of the neutrals), but more than those other ways, I feel this is something that makes no sense to allow because it has nothing but negative effects.
I would suggest requiring a minimum of a single alpha-numeric character (or even a non-whitespace character). One could even get that up to three alphanumeric characters, but one is the very minimum in order to have people be referable to.