Comment 5 for bug 659817

Right now, as I understand it, NetworkManager doesn't do anything with domain name (not did it in the past). The domain name from DHCP isn't used because different servers appear to send different conflicting information, which makes it hard to figure out what to use as domain name (usually they really send a search domain, which is very different). In previous versions NM simply didn't touch /etc/hosts, the domain there was left from the initial installation.

As a workaround, you could add a script to the /etc/NetworkManager/dispatcher.d directory that will handle the hostname changes.