In a Domain Driven Development DDD, have a validation on a DTO that calls a external service is wrong, if yes, where should it be

If I needed to input data and capture errors, I would probably do something more like:

public class Employee
{
    public int EmpID { get; set; }
    public string FirstName { get; set; }
    public string LastName { get; set; }
    public string Salary { get; set; }
}

public class ErrorEmployee : Employee
{
    public string[] ErrorReason { get; set; }
}

1. Read CSV file row by row
2. For each element i.e EmpId, FirstName... etc do the required validations by calling individual methods having validation logic. eg: public bool ValidateIsDecimal(string value) { } public bool ValidateIsEmpIdExists(string value) { } etc
3. If valid, fill corresponding property of "Employees" class. Add this Class to Employees collection (eg: List)
4. If NOT VALID, fill "ErrorReason" property, with appropriate reason as to what caused the validation to fail.(eg: Required filed was missing or datatype is not decimal etc) Add this Class to ErrorEmployees collection (eg: List)

I wouldn't want to pollute the regular Employee (singular, use the plural for a collection of them) object with error messages. As in the note above, check out the FluentValidation library for your validation and capture a list of errors rather than just the first found.

I'd go with Option 3, with the following notes:

1. Try and reduce the amount of domain logic that your clients need to know to get the job done. Create services that expose that data in meaningful (to your clients) ways, so that you can request collections of domain objects which fulfil certain criteria, rather than doing that crunching on your client.
2. Validation should be considered optional on the client-side as, you can never guarantee that future client implementations are going to be done properly. Therefore, always validate on the server side as if it hadn't been done elsewhere. Of course, clients should be validating on the client-side too.
3. Rather than mapping the WCF data back to full domain objects on the client side, consider mapping them to simpler ViewModel-type objects - a slimmed down version of your full domain objects only containing properties appropriate to the client - makes client programming simpler.

The problem you're still faced with is lots of mapping. I guess this price is worth paying (and made easier with a tool such as AutoMapper) because removing the client dependency on your domain model gives you breathing room to change your domain, tweak the mapping, without breaking any client code.