Is it a good idea to mask ownership of your domain?
Services like Domains by Proxy allow you to mask (hide) the true owner of a domain name. In my opinion, the legitimate business case for doing so is questionable. Wikipedia suggests that it's a good way to block “unsolicited contacts from third parties.” I don't think that's true-- I think a legitimate business is going to have contact info on their website, making it possible to contact them with postal advertising or regarding legal issues, regardless of uses of a domain masking service. And if you're worried about spam, use a unique email address that is well spam filtered, and isn't your primary email address.
I guess if you're a one man shop, working from home, and you register a domain for your business, maybe you're concerned about people knowing your home address. But domain masking isn't the only method of addressing this. The UPS Store (and the USPS) runs a brisk business in PO boxes and/or PMB postal addresses for exactly this kind of use.
And what's the down side to using a domain masking service?
You look like a spammer. Wow, really? Yes, really. It's that simple. A lot of the people that use these services seem to be spammers. I don't have data on this; only anecdotes. But I can tell you that, unfortunately, that based on my personal experience, there is a strong correlation between “likely to send unwanted or unsolicited mail” and “who owns their domain is hidden behind Domains by Proxy.” Sad, but true. Thank spammers for ruining another part of the internet for the rest of us.
Why do spammers do this? Lots of spammers register large numbers of domains. From dozens to hundreds (or even more). If they made their ownership of these domains publicly, easily found via the internet's WHOIS databases, anti-spam groups like Spamhaus would be able to track them much easier. It's not much of a deterrent, but it's enough of one to be very common in spammer circles.
And there might be legal risk as well. Read about this 9th Circuit opinion in USA v. Kilbride, (9th Cir., 2009) as reported by Mickey Chandler over on Spamtacular. The court found that use of a service that masks who owns a domain (like, in my opinion, Domains by Proxy) counts as material falsification under the US Federal anti-spam law, CAN-SPAM.
The jury is out on whether or not this is likely to be used against other bad actors in the email space, but why risk it? If you're a legitimate business, show the world that you are one by having your domain registration accurately reflect that you own every domain you use.
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