Recently had a client discover that SharePoint 2010 was displaying users as domain\username instead of the Display Name as it is in Active Directory; oddly it wasn't all accounts either. After some deep searching, I found the following fix. Using the SharePoint Command Shell do the following:
1) If the problem only appears with a single user, you can update a single account like so:
Set-SPUser -Identity ‘domain\Username’ –Web http://<URL To Site> –SyncFromAD
2) If all (or a lot) of the uesrs you can do it by the following:
Get-SPUser –Web http://<URL to Site> | Set-SPUser –SyncFromAD
The above will reset all users FOR THAT SPECIFIC URL; if you have additional site collections (i.e. Managed Paths), you have to run it on those URL's as well.
NOTE: You will often get an error for 'invalid' accounts such as Local Service - you can generally ignore the message as long as users show up correctly.