Single-label Domain Names and Exchange Server 2007 SP1
If you are experiencing problems in upgrade your environment to SP1 because you have a single-label domain level name you must read this and send your information to Exchange team.
If you attempt to install Exchange 2007 SP1 into an Active Directory forest containing a single-label domain name (e.g. "Contoso" instead of "Contoso.com"), you'll get this error message:
Microsoft Exchange Server 2007 setup cannot continue because this computer belongs to a domain that has a single-labeled DNS name. DNS domain name: XYZ
As the Exchange 2007 SP1 release notesstate:
"Exchange 2007 is not supported in environments that use single-label DNS names. Single-label DNS names are DNS names that do not contain a suffix such as .com, .corp, .net, or .org. Exchange 2007 SP1 Setup performs a prerequisite check and will not continue if your environment includes single-label DNS names. For more information about single-label DNS names, see Microsoft Knowledge Base article 300684, Information about configuring Windows for domains with single-label DNS names".
Read more at: http://msexchangeteam.com/archive/2008/01/17/447869.aspx