I think that this is a pretty good solution. Another idea I had on my own would be to let you use personalized nicknames that could be whatever you want, but that for those to be public(seen in pvp battles) you would need to get a ‘nickname license’ that would require you to submit your monster and its name to real people who would probably be able to recognize the more obvious ways to avoid filters(Greek characters, leaving out certain letters, 0’s instead of O’s, dividing an inappropriate sentence between multiple monsters, etc.)
I also think that this could be a system on the forums where forum mods could give people these licenses if they think that they could trust them. This would encourage people to create forum accounts that are actually active and contributing to the community so that they could get the license. Obviously admins and mods should be able to revoke this if they get the license then immediately abuse it, and reporting/flagging names in game should also be an option, but we already deal with these sorts of things when it comes in inappropriate ign’s, so this won’t be too much harder.
Like I said, having humans moderate could fix this, but I think that applying a simple nonsense filter(A code that detects and flags strings of characters that are unlikely to be an actual pronounceable word/name, or strings that include multiple types of characters like a bunch of letters with a random 0 in the middle) would help prevent people from doing this or using some sort of code in their names that could be translated to a vulgar word or phrase. You can find these online, but you may want to code your own.