Can I use my domain name as my server host name?
Are there any problems with this setup:

/etc/hostname
sample

/etc/hosts
127.0.0.1 localhost
xx.xx.xx.xx sample.com sample

You need to have a hostname, example

xx.xx.xx.xx webserver.sample.com webserver

Thank you for your answer. I did setup test system with my domain name as host name and everything seems to work fine. Can you please explain what are the disadvantages of such setup?

Your Domain is your domain, host is server. Look at it this way -

Domain = Your Country
hostname = Your City

Think of the complications if all City's in America were just simply called America, get the picture?

Using your analogy, if it's a very small country with only one city, that city essentially IS the country so it would make sense if they used the same name. Since my server handles everything for my web domain, essentially it IS the domain.

Actually since it handles everything for multiple domains, it would make sense for it to have multiple host names, but that's another question.

No your domain is your domain, your server is your server. Apples and Oranges my friend
Think of it this way, your domain is your city, your hostname is your house/ a building.
Bottom line you'll run into problems, stick with the standards

Avoid domain names.

For technical reasons, domain names should be avoided. In particular, name resolution of non-absolute hostnames is problematic. Resolvers will check names against domains before checking them against hostnames. But we have seen instances of mailers that refuse to treat single token names as domains. For example, assume that you mail to "libes@rutgers" from yale.edu. Depending upon the implementation, the mail may go to rutgers.edu or rutgers.yale.edu (assuming both exist).