Well the problem is that most DNS servers are built to use the ASCII set of characters for input and processing etc. As it was originally written this only has 127 characters.

(see http://www.asciitable.com/ for the list).

The extended ASCII character set does have support for most multilingual characters, but there's the problem of rolling this out to every existing DNS server and there are thousands if not millions of them.

Then there's the browser problem - a modern copy of Firefox/IE should support most international characters fine - but legacy browsers (IE 6 and lower) I don't think do as standard and so you've got that problem as well.

So you'd end up with a situation where only some sites, some users, and some browers could get to your site, and you really dont want to restrict your site traffic that way if you can possibly avoid it.

The other problem then comes in terms of advertising - if you want to sell Website.com on the radio etc everyone will know your site is or be able to search for it, but this might not be the case with sites in or about other languages if the domain uses multilingual characters.

INDA proposes a way to solve this by letting users enter the domain name in a way that is local to all users, but it sounds overly complicated and unlikely to get widespread adoption, in my opinion.