There is strong evidence to show that the use of target keywords in a domain name is a significant ranking factor for search results. A quick random search for ‘cool wallpaper’ (no idea why that was the first thing which came to my mind) shows how sites with those keywords in the domain name often rank high (although there are certainly much more significant factors, such as the number of links pointing to a page which). . .
So whilst using keywords in a domain name is not essential to rank for particular keywords, it is definitely something worth thinking about.
BUT, what if you are trying to optimise for Chinese words? Or Greek? Or any other language which uses non-Latin characters? Today you no way of putting those keywords in to the domain because it is not possible to use non-Latin characters in web addresses 🙁
This may soon change. ICANN (The Internet Corporation for Assigned Names and Numbers) are about to approve the availability of non-Latin alphabet domain names. If the change is approved, the domain names should be available for grabs in early 2010. There will no doubt be a mad rush from businesses, entrepreneurs and domain squatters to get the new internet addresses, so start thinking about which keywords you need to target for your international sites NOW and get in there early!