I like the idea too, but much prefer randomly generated names - it keeps things simple. Repetition can be avoided with a HUGE list of names and simple check to ensure none of them appears twice in the same world.
Don't really see why this would cause more lag to the game whatsoever. Of course its impossible to tell without seeing the actual code, but one would think that drawing simple string once per visible island is not that much of a burden for client machine (nor does it bring much bandwidth overhead to send them).
While it might make alliance coordination easier, much more important point in my opinion is that it would give some personality to otherwise unforgivably generic islands.