There's nothing stopping squatters from registering these domain names other than the fact they would have to register so many. That's part of the beauty of it.
Re: making it a paid service -- how would you charge?
I think adding a barrier of having to login would at least get rid of the automated searchers/scrapers that want to register all short domains in a profitable domain niche.
Limiting numbers of searches, depth of searches in free/no account vs having an account and/paying?
I'm not advocating for making it a paid service - squatters will probably pay too for a good service, my wishes for LDS are that it stays relevant in search quality and results for a long time and it can't be usurped by a few people with money -- most of who are squatters.
One rather obvious approach for making it a paid service: talk with a reputable registrar and get them to adopt it as their primary search-and-register mechanism.
Re: making it a paid service -- how would you charge?