Nice work on this, as I discussed on chat with you, I would really love to one day see this possible without too much fidding from a non-tech savvy person like myself. I also see some concern in having to place trust in the private dns provider which is an issue.
Do people who wish to see .STEEM addresses also have to modify their default dns server?
For now, yes. But you'll soon be able to go to for example sweetsssj.steem.something - I'm working on getting a domain for this and setting it up.
To reduce the trust, one could set up the DNS server locally (guide coming soon), thus no trust needed.