You need to restart network-manager after changing the configuration
value.

It's unfortunate that the configuration needs to be changed, but it's
needed. I sympathize with your use case, but there is sufficient benefit
in using NM together with dnsmasq and resolvconf to solve other DNS
resolution issues to inconvenience those who use dnsmasq separately as a
standalone daemon (to have to change the config to suit their needs).

We won't be fixing this for Precise, but I've started discussion with
dnsmasq upstream to possibly deal differently with the binding and allow
running instances on other IP addresses (such as 127.0.1.1 or so). It's
still going to need sufficient amounts of work to fix dnsmasq's method
of binding to interfaces and how NM starts and interfaces with dnsmasq
(though I already have patches for NM, but they're useless without the
fixes in dnsmasq). At this point though, the simplest way to deal with
this remains to edit interfaces= to map to the relevant external
interfaces (eth0, wlan0, etc.) and let the NM-spawned instance get
started on lo.

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https://bugs.launchpad.net/bugs/959037

Title:
  Don't start local resolver if a DNS server is installed

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