I'm asking, because I dimly remember you not being a fan of OE -- have I confused you with someone else there?
This is wrong, though: although new users will, in fact, be temporarily MITMed, all returning users will see a big scary warning page that will cause them to (perhaps automatically) report the problem to their browser vendor. Google/Mozilla will promptly drop the offending URL into the malware-sites list, and the new users will thereby be rescued as well.
We're talking about referring to Telehash's approach as "ubiquitous encryption" with "self-consistent authentication" but nobody seems to agree on what authenticating an identity means in the first place.
Pinning encryption to addressing solves those problems at a lower layer, and leaves phishing attacks to be solved separately. I don't know that anything I'd call "perfect authentication" can be solved within the X.509 framework.
Telehash is taking an approach that completely sidesteps the problem of human-memorable names, though. It uses the public key fingerprint as the "network address" of a node in a DHT. The Telehash address is globally routable, like an IP address, but there is no MITM possible, because only a node with the private key generating the address (fingerprint) can communicate at all using that address.
There is still the problem that humans don't want to type in an IP address, let alone remember something unwieldy as 9ba9c175c3c26af9df5c8163ea91d4ae4eca59ba95d66deb287c89ea0c596979. But deciding whether to trust that key is distinct from verifying data is signed with the same fingerprint.
[1] http://en.wikipedia.org/wiki/Cryptographically_Generated_Add...
So the difference is the reporting mechanism, that allows a powerful organisation to make meaningful threats to protect others?
Because in [Garfinkel 2003] it's similar: returning users get a big, fat warning, but they can't meaningfully do anything about it on their own, except not trust the other side.
(http://simson.net/clips/academic/2003.DGO.GarfinkelCrypto.pd...)