bind finds external names but not local

[Kae Verens]

I have a small network of about ten computers in a 192.168.1.x network. 
The network uses 192.168.1.254 as a gateway to the Internet.

We call the local machines *.im - the one I'm typing on is called 
winbox1.im, for example, and the DNS server is called ls1.im.

We use ls1.im as the internal DNS server, which should poll through 
192.168.1.254 when it doesn't know the answer.

The problem is that the polling happens at all time - it never returns 
any local names. For example, if I dig for ls1.im, I receive this reply:

[root at ls1 named]# dig ls1.im

; <<>> DiG 9.2.1 <<>> ls1.im
;; global options:  printcmd
;; Got answer:
;; ->>HEADER<<- opcode: QUERY, status: SERVFAIL, id: 22300
;; flags: qr rd ra; QUERY: 1, ANSWER: 0, AUTHORITY: 0, ADDITIONAL: 0

;; QUESTION SECTION:
;ls1.im.                                IN      A

;; Query time: 2 msec
;; SERVER: 192.168.1.2#53(192.168.1.2)
;; WHEN: Thu Feb  5 15:58:14 2004
;; MSG SIZE  rcvd: 24

That's when I run the search on the actual ls1.im machine!

Relevant files can be found at http://contactjuggling.org/named/ - the 
named.* files are located in the /etc/ directory of the server, and the 
others are in /var/named/

The server is running what was RH7.2, but has been upgraded to about 9.0

Kae