I personally agree that floating names aren't the best solution, I'd love to see something better come along. However, I just like playing devil's advocate so here are a few more issues to think about:
I'd argue that in New York, I wouldn't want to interact with new and strange people. New York isn't a community, it's a bunch of disparate people living in the same area. If you want an MMO to be an interactive and communicative place, you kinda need to know who you are dealing with. No one in New York is paying to play/interact with each other. I'm paying for a game that is supposed to also be a community of some sorts.
Take for example, the middle of a busy city in the game. I see a message in general chat (which, for realism shouldn't exist either) and decide I want to go over and talk to that person "face to face." Now, either I can walk around and look at the floating names over people's heads, or if those don't exist I can send him a pm and ask what he looks like/where he is to find him. Neither of those options are really good for roleplaying or realism.
In group PvP, I shudder to think what that would be like without some kind of overt out of character format of seeing who is in your guild or in your opponent's... which brings me to a good point, how do you do guild identification without floating names? Tabards would go against the customized look Simu is going for. Everyone around you in a room could be a in the same guild and you'd never know.
Not to mention, Simu has specifically said that they can only achieve so much detail in the characters and their clothing because the detail varies with the distance. So in a big area, it'd be impossible to tell the person you are looking for from someone who looks similar unless you went over to them. Perhaps, visual detail distances will even be on a slider in the graphics menu setting. In that case, people with lower performance machines would be at a social disadvantage as well as a mechanical one.