I went through the NHibernate documentation and I think I have my answer, but just in case, I would ask the experts here again.

Does NHibernate support the use of logical business entities that doesn't have a 1 to 1 mapping with the underlying database tables? We use a highly normalized database that is cumbersome to use from the middle tier. We would like to define logical entity that would map to multiple tables in the database. My understanding is that NHibernate 1.2 does not yet support this feature. Or did I miss something somewhere?

As a follow up, if we would still like to use NHibernate as the persistence solution. What is the best approach to bridge the logical middle tier entities and the normalized database schema?

This is really something that can be asked with relation to both schema and desired object model.
In general, NHibernate doesn't support loading a single object from multiply tables, although it can be simulated using joined classes.
Hibernate does have this feature, and it would arrive to NHibernate eventually.
It is currently not planned for the 1.2 release, though.
If it is important to you, feel free to port the functionality from Hibernate (a non trivial task, I must warn you) and submit a patch.

At any rate, open a JIRA issue for it (although one may already exists).