Dear Bob.
/etc/sysconfig/network Hostname=server1.mydomain.com (where the domain is one of my websites on the server, actually my name server too)
As mentioned before, I cannot see that this variable is used in any form.
Change /etc/hosts First of all, leave all the original stuff and do not alter. Underneath the original stuff, just add <ipaddress> server1.mydomain.com
REBOOT
If you have read the initial posting this is about setting up the hostname on machines without a network connection (but loopback).
Best Regards Marcus