Exact same problem here.  Static IP config that worked fine in 8.04,
borked when 8.10 upgrade came.  Can't alter using NM gui (no password
prompt - says I don't have permission).  Connectivity to ISP is fine,
but DNS doesn't work.

Example:

$ ping google.com
ping: unknown host google.com

$ ping 64.233.187.99
PING 64.233.187.99 (64.233.187.99) 56(84) bytes of data.
64 bytes from 64.233.187.99: icmp_seq=1 ttl=241 time=39.9 ms
64 bytes from 64.233.187.99: icmp_seq=2 ttl=241 time=47.5 ms
64 bytes from 64.233.187.99: icmp_seq=3 ttl=241 time=37.3 ms

$ cat /etc/network/interfaces 
# This file describes the network interfaces available on your system
# and how to activate them. For more information, see interfaces(5).

# The loopback network interface
auto lo
iface lo inet loopback



iface eth1 inet static
address 192.168.1.128
netmask 255.255.255.0
gateway 192.168.1.1
# dns-nameservers 192.168.1.1


auto eth1



(why all the blank lines?)


$ cat /etc/NetworkManager/nm-system-settings.conf 
[main]
plugins=ifupdown,keyfile

[ifupdown]
managed=false


Really guys?  Is it THAT difficult to make a DNS lookup when using a static IP 
config?  I'll be moving to Fedora if this isn't sorted out soon.

-- 
[regression] devices/interfaces not set to "auto" in /etc/network/interfaces 
get blacklisted in 0.7 (intrepid) but were managed in 0.6 (hardy and before)
https://bugs.launchpad.net/bugs/279262
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