It's a common user error to omit the namespace when {{DISPLAYTITLE:}} is used outside mainspace on wikis with the default $wgRestrictDisplayTitle = true. Users rarely want to change the namespace appearance and it's an understandable mistake. I suggest it becomes allowed to omit the namespace. The namespace and colon should be displayed normally in that case.
For example, if you are on https://en.wikipedia.org/wiki/Category:Star_Wars then {{DISPLAYTITLE:''Star Wars''}} should be treated like {{DISPLAYTITLE:Category:''Star Wars''}} instead of giving an error.