In a n-tier archtecture, is it advisable for the Hibernate ORM to work with the Domain Objects(create and store) directly? The other option is to have a transfer object assemblers layer to convert between hibernate dao's and domain objects.

This question is discussed pretty often (also it's not an FAQ), you search after "3-tier" or "n-tier" in this forum. After all it's a matter of taste. There is no TECHNICAL reason to use DTO cause hibernate domain object are lightweighted POJOs.

IMHO the answers is: "It depends". If your n-tier modell is on one maschine, I would use the domain objects directly, if you've got a remote architecture (via RMI, WebService, http or whatever) if would use DTO to keep the transfered data as small as possible.