Datasets do make more sense in a .NET environment; however, there is always the possibility of the tool becoming outdated as mentioned in a previous post. WIth ORM's and code generators though... DTO's and entities are really win/win. The only real "problem" you run into with custom classes is that you usually have to code for concurrency, but the real "problem" you have with datasets is the amount of data that's serialized (two result sets instead of one).
As with anything in programming, there are pros and cons to each approach. It's nothing I would spend an afternoon arguing about :)