Microsoft Knowledge Base Article 300684 contains the following summary:

This article provides information about configuring Microsoft Windows 2000, Microsoft Windows Server 2003, and Microsoft Windows XP for domains with single-label DNS names. Microsoft does not recommend that you name Active Directory domains with single-label DNS names for the following reasons:

Single-label DNS names cannot be registered with Internet authorities.
Domains with single-label DNS names require additional configuration. For example:
DNS might not be used to locate domain controllers in domains with single-label DNS names.
Dynamic updates are not performed to single-label DNS zones by Windows XP domain members.
Dynamic updates are not performed to single-label DNS zones by Windows 2000 Service Pack 4 (SP4) members.