In Wikimedia projects (and MediaWiki systems in general) you actually have to pay attention to other people's usernames (when working with histories and in article discussions), and at least in Wikipedia long long time ago there was a lot of trolling/vandalism where people impersonated other users (particularly the admins) and made bunch of sockpuppets with tiny variations in names when they got banned. So this rule makes sense.
Defense against homoglyph attacks is a good thing. I'm sure they haven't had a big issue, but they have a homoglyph detector and that's a great idea. More systems should implement a generalized homoglyph detector.
All the options you give are allowed, only what OP shows gives the error. While it seems like a good idea, seems the implementation is terrible and only filters out the most obvious ones.