Are you running an appliance? I had a similar issue. In Windows 2008, you can set the domain name and the NetBIOS name to be different values.
A lot of little problems we had with FS 7.0 went away when we upgraded to MVM 7.5. But you need to be at W2K8 to run most of the 7.5 components. If you have an appliance, you can request an upgrade kit.