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.

** Changed in: network-manager (Ubuntu)
   Importance: Medium => Low

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

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

Status in “network-manager” package in Ubuntu:
  Triaged

Bug description:
  As described in
  https://blueprints.launchpad.net/ubuntu/+spec/foundations-p-dns-
  resolving, network manager now starts a dnsmasq instance for local DNS
  resolving.

  That breaks the default bind9 and dnsmasq installations, for people that 
actually want to install a DNS server.
  Having to manually comment out "#dns=dnsmasq" in 
/etc/NetworkManager/NetworkManager.conf doesn't sound good, and if it stays 
that way, it should be moved to the bind9 and dnsmasq postinst scripts.

  Please make network-manager smarter so that it checks if bind9 or
  dnsmasq are installed, so that it doesn't start the local resolver in
  that case.

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