Hello Archy,

Thank you for submitting the described scenario!

Currently, the automatic identification of the IDN domains is not supported in the Editor component, but this fact could not be treated as a bug. This is why I’ve converted the type of the issue from Bug report to Feature request. 

If there is enough interest from the community and depending on our priority queue, the current feature request could be implemented and released in future versions of Kendo UI. You could follow the current thread and be up-to-date with all updates related to this request. 
Regards,
Petar
Progress Telerik