Just tested it - yes, you are right.
How clients handle it? Well, very simple, they simply display a t.co URL.
Should be some more checks on the URL though, I agree.
Tom
One more note,
You can't visit a page that has a long link on it.
@barthoekstra and I (@tvdw) just tested this - I posted 5 paragraphs of
the well-known lorem ipsum (don't worry, deleted after a few seconds)
but his timeline started saying "Something is technically wrong". I
removed my tweet and it was fine again. He then posted an url as well
but now he can't remove it anymore. I am assuming that all his ~1500
followers can't use the timeline anymore at the moment.
Proof:
http://twitter.com/barthoekstra
Tom
Zac