Just ran into this myself with 12.04.

The problem is nsswitch.conf is:

hosts: files mdns4_minimal [NOTFOUND=return] dns mdns4

which means looks up check hosts, mdns and if mdns reports a not found
then it doesn't go to DNS.

Switching it to

hosts: files dns mdns4_minimal [NOTFOUND=return] mdns4

fixes it by having DNS get checked first. IMO this should be the out-of-
the-box configuration since the historical trend would be the DNS is
serving names and should get precedence anyway.

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https://bugs.launchpad.net/bugs/80900

Title:
  problems resolving fully qualified domain names in environments where
  .local is used as a TLD

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