To be clear, I think there are confusions in between three names :
#1 the instance display name
#2 the /etc/hostname
#3 the related /etc/hosts name
For #1, having a FQDN [1] is OK. Also, as it's an API field, we can't change it or it would need a new microversion.
For #2, as Jeremy said, in general you just have the short instance name, not the whole FQDN, so I think it's totally fine to strip the name after the first period (and AFAICT, that's why you see the short name already as the OS cuts it already)
For #3, you can *either* have short names or FQDNs but given we see problems with Designate, I'd be telling that we should also strip the name instead of having the whole FQDN, as anyway the domain is not verified by Nova.
-Sylvain
[1] By FQDN, I mean a name like "instance.tld" where "tld" is "domain[\..*]+"