Comment 15 for bug 959037

Then at this point the issue is that dnsmasq is shipped with a default configuration that while it's technically "correct"; binds on all interfaces and should normally be modified by the admin to suit the needs of their network. That configuration will break with NM making use of dnsmasq-base as a local resolver; and most likely also bombs with qemu/kvm virtual machines.

I want to make this easy for people in your situation, but having a system-wide instance isn't going to work. Not only is it way too complex for what we're trying to achieve (let alone confusing to users to see packages get removed by metapackages), but you always risk that someone modifying the system-wide config meant for use with NetworkManager then causes totally unwanted behavior when NetworkManager tries to add nameservers to the configuration. That's without counting that this still doesn't fix the issue of resolving for virtual machines, which you'll almost certainly want to resolve separately from anything else (and to think of it, installing virt-manager and virtual machine on your setup probably breaks just as bad as NM).

I've been trying hard to offer solutions and I've proposed configuration changes to the shipped config which cover the issue nicely for your case. If you don't want to apply these changes, that's fine; you're obviously free to implement a fix however you see fit :)

For precise +1 there may be a way to move dnsmasq initialization in NM to use 127.0.1.1, and allow this in dnsmasq with upstream's help, but that's not even going to solve this particular issue.

Reducing the priority since we won't look at this until Precise+1 and there aren't many reports about such issues.