Yes and no. Celebrities, well known business owners, politicians, influences maybe? etc. would all use their own domains because that's their brand. Us plebs may end up using NIP-05 providers. I honestly don't know though, it's all way too early, and this is all just speculation.
Discussion
Doesn’t this ultimate make DNS the “base layer” for identity? (Not sure if that’s good or bad or I’m simply wrong.)
It kind of is... and it's centralized. So we have some work to do there.
Well it's really not an identity, but an alias, a pseudonym. A domain owner or DNS could a) steal your alias or b) erase it. In case b) you just set another alias, but case a) might be a bigger problem - people could try to impersonate you and scam others.
I've seen people in Nostr design telegram group proposing visual markers on avatars that depend on pubkeys so that users would notice a different pubkey impersonating a familiar one. Haven't seen that implemented anywhere yet though