> "cat init.rc" confirms that the changes are there.
> However, after reboot the changes the the DNS section  in init.rc  
> disappear.

most likely something overwrites them later on.
either one of the init scripts (no clue what kind of init android uses) or  
the networking subsystem does that on it's own.
check, if dhcp is triggered somehow and check the dhcp config.

> In addition, gsm service is gone.

does it come back, wheh you undo the dns changes?
i'd guess, it is unrelated.

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