there’s nothing special about any level of domains, it was always a hierarchical protocol

The difference is that .name allowed you to buy steven.smith.name and someone else could buy john.smith.name. The shared hierarchy between those names is the .name domain, .smith.name doesn't really exist.

Of course, this could be trivially fixed if .name would take the shared part of every second level domain, treated it like a TLD for legacy customers, and turn it into a hierarchical system.

But they'd need to do that for possibly thousands of paying customers, there's no way they'd be able to afford that, Verisign only makes 1770000000 dollars of yearly revenue! Honoring these existing contracts would bankrupt them!