<p>I'm using Entity Framework O/R mapper from Microsoft and using entity classes (generated classes that are mapped to DB objects) as a business objects. 
Is this OK? Please state your cons or pros. What to do in a case of WCF communication between business layer and presentation, how to send those objects as data members?</p>

The Entity framework was designed for the entity objects to be used as business objects, but you should keep in mind that the business objects will be tied to O/R technology as well as the EDM model. In EF 1.0, there wasn't any support for
persistence-ignorance
scenarios, but support was added in 4.0. You can implement
interfaces
, if you don't want to use any of their base classes.
As of .NET 3.5 SP1, they should also be usable as paramater and return types in WCF service methods without any additional code.