DNS Server Host's Network DNS Settings

[Steven Stromer]

This is probably a naive question, but what, if any relationship do the 
DNS settings of the host have to the BIND server that the host is 
hosting? (And no, this isn't a smart-as**d joke... I'm really wondering.)

This is kind of a two part question, as I imagine the potential exists 
for both the host to send DNS queries to the local DNS service, and for 
the DNS service to ask its host for its DNS settings.

My instinct is to think that the host will query the local DNS service 
if the host's network settings are so configured, and that, vice versa, 
the DNS never looks at the host's network settings.

If my assumptions are correct, then a follow-up question would be, How 
should the local network DNS settings be configured on the host? 'Should 
the DNS entry be 127.0.0.1, the assigned lan IP of the host (as other 
hosts on the lan are configured), some other entry, such as 'localhost', 
or is there some unimaginable reason why the host should never be 
allowed to query the local DNS service?'