My colleague Scott -- who is a master of that black art, networking -- always recommends FQDN.
I come at it from the point of view that DNS can be another point of failure. Do you want your users blaming Notes/Domino for connection errors because the OS can't resolve a name due to DNS errors?
Scott comes at it from the point of view that he can do some "very funky stuff" with the network and NAT addresses and Names across systems, etc. (He loses me somewhere after "NAT." <grin>)
Seriously, though, is the server multi-homed? Does it have internal and external addresses? Does it have multiple NICs? Is the (Notes) connection document supposed to work inside and outside of your network?
These are the issues you have to consider when creating your Notes connections.
There is no right or wrong answer to this question. Short answer: Both work equally well in a Notes environment given certain criteria.
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