I don't know enough about the payment protocol between the point of sale equipment and the acquirer, but even if it is technically feasible I suspect you're right about Visa and MC being reluctant to enforce proper DCC for the above reason. Think about how it used to be in the US where card issuers would build in the 1% interchange fee making things more nebulous. It took a lawsuit to stop that. Unfortunately DCC is rare enough in the US - I think there was one complaint in Florida about Avis - where we would need enough foreign cardholders getting ripped off here in order for there to be any movement. I believe it took a lawsuit in Taiwan as well before terminals there became compliant.

It's pretty bad from what I've read. I can't cite any recent FlyerTalk examples that I've found here, but I know it happens. For instance, it happened to me at the Frankfurt Marriott, and I was livid in my comments to the general manager of the hotel. Specify clearly at check-in that you want to be billed in pound sterling, watch any authorizations or receipts that you sign like a hawk, refuse to sign anything other than rates quoting GBP at check-in, and deface any receipts at check-out if they've been naughty and take photos of the defaced receipts. Finally try your best to get them to avoid DCC upon checkout with the knowledge that if they refuse you will be disputing the charge. When you get home, request a Reason Code 76 chargeback if you used Visa or Reason Code 4846 chargeback if you used a MasterCard.