When you think about it, they were lucky it worked. Calling yourself Wang Fire and Starfire Fire is the equivalent of a water tribe guy called Mr Iceberg or Earth kingdom guy name Rocky Mountain.
I agree. However playing devils advocate they were “from the colonies.” It could explained they changed their names to fit in better but picked bad ones. From the perspective of the headmaster this could be an adequate explanation.
I mean, there's lots of French people called François (which comes from the same base as France), a German musician called Drafi Deutscher, so many people of various levels of renown with English as their surname that the Wikipedia page links to several disambiguation pages... I mean, there's people with "Human" as their surname.
Surnames can be remarkably blunt.
(Also, Sapphire Fire. It would've been hilarious if Katara started taking like Starfire, though. "This is my husband, the Fire of the Wang.")