Ha ha. This particular computer must access a number of L3 subnets on one single L2 network. DNS issue occurs on other devices as well though, so the IP stack on this computer is not the source. ;>
OK, that works.
But why? Given that DNS resolution of all public domains is working from the clients, I assume the gargoyle intermediate router is forwarding properly.
At first I was thinking the gargoyle won’t forward a look-up if the IP of test.mydomain.com being looked up is on the same subnet as the gargoyle. But the gargoyle doesn’t know the IP at that point. It doesn’t know that test.mydomain.com is a local address. So it should forward to the Balance.
Problem solved, but if you have an idea as to this behavior I’d be curious to know.
Base on the test that you had performed, confirmed that local DNS records is work as expected. I would suggest you may check gargoyle intermediate router to further confirm whether DNS queries for “test.mydomain.com” is forwarded to Balance.