I have the same problem.
DNS/DHCP Server: Linksys WRT54G router with DD-WRT Firmware (dnsmasq as 
dhcp/dns server)
Client Computers (OS): Edgy, Feisty (fresh install, updates installed)
network-manager is connecting through dhcp (search domain is automatically 
defined in resolv.conf)

In feisty it isn't possible to resolve a local fqdn 
(computer.mydomain.local)... but resolving internet domains is no problem!
dns lookup works in edgy and feisty.
ping and e.g. firefox can't resolve my domain.local.

So i can't access my local ftp/http server with the fqdn, but using only
the hostname or ip makes no trouble.

Could this be related to avahi or new network-manager version?
I will have to do some more tests.

-- 
problems resolving fully qualified domain names on Kubuntu feisty
https://launchpad.net/bugs/80900

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