Traditionally this address range has been used for "local to the host" communication, however in surveying the state of this part of the IPv4 universe, only a few IP addresses in this range are used - some for spam protection daemons, some for DNS.
We propose cutting down the "localnet space" to 127.0.0.0/16 (e.g. 127.0.0.0- 127.0.255.255) and allowing the remaining 127.1-255/16s to appear on the wire.