You are correct in your assumption that on many muds the name is asked first because it is used as the name of the character file on the server which holds all the account details.
What is perhaps less widely known is that you can (again, on many muds) change your name prior to authorization.
On SMAUG muds you just type
name potts
and your new name will become Potts
I imagine it is similar for ROM and Diku muds.
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