The bug (in the network-manager package) is that /etc/dnsmasq.d/network-
manager contains

    except-interface=lo

despite the fact that network-manager was changed not to listen on lo's
IP address (127.0.0.1) any more.  Here's the changelog entry announcing
this change.

  network-manager (0.9.6.0-0ubuntu4) quantal; urgency=low
    * debian/patches/dns-dnsmasq-interface-and-dbus-path.patch: set the address
      dnsmasq (and bind) plugins should listen on for DNS resolution to 
127.0.1.1,
      as opposed to 127.0.0.1 to avoid conflicts with other instances that might
      need to run on the system with that address.
      [...]
   -- Mathieu Trudel-Lapierre <[email protected]>  Tue, 21 Aug 2012 
11:45:46 -0400

If the aforementioned line is commented out

    #except-interface=lo

then name service works, with the standalone dnsmasq listening on
127.0.0.1 and forwarding to 127.0.1.1.  @Submitter: please use this
workaround for now.  Assuming you want to use standalone dnsmasq,
remember to set /etc/default/dnsmasq ENABLED back to 1.

Earlier discussion of the issues at hand here: bug #959037.

** Package changed: dnsmasq (Ubuntu) => network-manager (Ubuntu)

** Summary changed:

- dnsmasq updating resolvconf when it's not configured to do DNS
+ network-manager dnsmasq configuration snippet causes standalone dnsmasq not 
to listen on 127.0.0.1, breaking name service when dnsmasq is installed

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https://bugs.launchpad.net/bugs/1042275

Title:
  network-manager dnsmasq configuration snippet causes standalone
  dnsmasq not to listen on 127.0.0.1, breaking name service when dnsmasq
  is installed

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