DFM is the one application that does not use the Display Name attribute from DCR. Therefore, for DFM to use hostnames, you must make sure your IP addresses are properly resolvable in DNS or in a local hosts file. The best way to test this is with the resolver.pl utility shipped with LMS:
The idea is that the IP address in DCR should resolve to the hostname you desire.
Show me an example entry from your hosts file, and what you are doing with resolver.pl. Also, what OS is this? If Solaris, is files listed in /etc/nsswitch.conf for host resolution?
Windows 2K3 OS
D:\Program Files\CSCOpx\bin>perl resolver.pl xxx.xxx.xxx.66
Original name: xxx.xxx.xxx.xxx
Well, there is no x.x.x.66 in this example hosts file. Therefore, adding the entry should work provided the OS is configured to reference this file. Unlike nslookup, resolver.pl uses the OS resolver so all of the Windows hostname lookup methods will be used (not just DNS).
There could be one other problem, then. Since resolver.pl uses Java to do the resolution, you could be seeing a "bug" with Java and hostname resolution. Basically, Java will check the result it gets back from the OS resolver to make sure it reverse-resolves to the same value. If the two resolutions do not match, it simply returns the IP address.
Check to make sure you don't have two x.x.x.66 entries in this file and that you do not have two entries with the same hostname.
Then resolver.pl should work. I know of no reason (other than perhaps some OS issue) that it would not return correct data. But unless resolver.pl shows the hostname, then DFM will not show the hostname.