Why do local network hostnames resolve only in certain cases

I have a linksys router which runs "tomato" Linux and serves as the local DNS server. It runs dnsmasq.

I recently upgraded from OS X 10.4 to 10.6. Since then, resolution of hostnames on my local network works in some cases but not others. Previously, this all worked as expected.

Here's an example:

tesla:~ cell$ ping watt
ping: cannot resolve watt: Unknown host

tesla:~ cell$ ping watt.local
ping: cannot resolve watt.local: Unknown host

tesla:~ cell$ ping -c1 192.168.42.1
PING 192.168.42.1 (192.168.42.1): 56 data bytes
64 bytes from 192.168.42.1: icmp_seq=0 ttl=64 time=0.659 ms

--- 192.168.42.1 ping statistics ---
1 packets transmitted, 1 packets received, 0.0% packet loss
round-trip min/avg/max/stddev = 0.659/0.659/0.659/0.000 ms

tesla:~ cell$ host watt.local
watt.local has address 192.168.42.1

tesla:~ cell$ host watt
watt.local has address 192.168.42.1

My guess is that the host command is querying the DNS server directly, whereas ping and any GUI apps (ie. Safari) are using some sort of Mac DNS resolution routines, which are not working properly.

Please let me know if there's any other info I should provide.

Edit: included pinging ip directly in above example

Edit 2: My domain is using .local