This bug was fixed in the package dnsmasq - 2.65-1ubuntu1

---------------
dnsmasq (2.65-1ubuntu1) raring; urgency=low

  * Fix local resolving when used with libvirt and bind-dynamic (LP: #1126488)
    - debian/patches/fix_tcp_queries.patch: Correct behaviour for TCP
      queries to allowed address via banned interface in src/dnsmasq.*,
      src/network.c.
    - debian/patches/fix_wrong_interface.patch: Handle wrong interface for
      locally-routed packets in src/dnsmasq.*, src/forward.c, src/network.c,
      src/tftp.
 -- Marc Deslauriers <[email protected]>   Fri, 15 Feb 2013 15:27:58 
-0500

** Changed in: dnsmasq (Ubuntu)
       Status: Triaged => Fix Released

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https://bugs.launchpad.net/bugs/1126488

Title:
  libvirt instance of dnsmasq in raring fails to forward DNS requests

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