DNS Tips: Mixing unicast and multicast DNS with .local
When you are working with various Microsoft Windows systems and with Windows Server configurations, it is possible that you will encounter a Windows Server with the top-level domain (TLD) .local configured within its DNS services.
This is going to cause problems. This is a conflict with the use of .local by Bonjour configuration services; where the local usage of the .local TLD for unicast (traditional) DNS conflicts with the usage of .local for multicast DNS.
Apple has available Mac OS X v10.4, 10.5, 10.6: How to look up ".local" hostnames via both Bonjour and standard DNS which can introduce mixed operations.
The general public recommendation of an Apple engineer working in this area is to avoid this configuration. Specific quotes:
It's definitely not cool with Apple to use .local for regular DNS. Just don't do it. Otherwise expect lots of aggravation.(¹)
And...
It works because we've put in tons of hacks over the years to make it work but there's always going to be some issue that's caused by using ".local" for Unicast DNS. I know issues still exist because we have the bug reports. There's an almost infinite number of other choices that network administrators could make when choosing a private TLD, so it would be better for everyone if people could pick one of those alternatives rather than knowingly choose the one domain name that conflicts with Multicast DNS.(²)
There are various approaches available for coexistence and for migrating out of the .local domain into your own registered domain. This can include configuring and operating DNS on Mac OS X Server, as well as various approaches for migration.
For assistance with DNS set-up and migrations, Contact HoffmanLabs.

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Microsoft also recommends against this usage. Here are two articles mentioning this:
I've seen other articles over at Microsoft with similar recommendations, though the use of the .local TLD does unfortunately appear rather entrenched at some sites.