Is it bad practice to rename computers in the domain

Editing your Hosts file is a Bad Idea.

Your Domain Controller(s) are not registering with a DNS server correctly.

1. Check the Domain Controllers IP settings, and ensure it's pointing at INTERNAL DNS servers (I guess in your case it'll be itself)

2. Check the IP settings of the machine you are trying to join. If it's static, ensure it's pointing at INTERNAL DNS servers that the Domain Controller is pointed at

3. Ensure that your DNS server is enabled and configured correctly

If all this fails, something more sinister is wrong. A dirty fix would be to manually add the A record to your DNS server for the relevant zone. It would be something like:

A
SERVER.DOMAIN.loc
10.0.0.5

Furthermore - have you used netdiag or dcdiag?

It rather sounds like a strange replication or authentication problem. It certainly does not come from domain and schema master roles not have been moved to the new DCs. I would advise against moving roles as this truly might break something - although probably not permanently.

You should try the following steps:

• remove DC2 from the domain, delete its machine account and re-join it
• use the Windows Server 2003 netdiag and dcdiag tools on DC01 and DC02 to check for possible problems with network services configuration or directory services contents
• use the Windows Server 2008 dcdiag tool to check for possible networking or directory problems on DC1
• try temporatily disabling the firewall on DC1 and re-try replication (just in case your firewall rules screwed up for some reason)