Fake domain doesn’t resolve when offline

I have a flimsy grasp of DNS. Nonetheless, in order to install a local development copy of WordPress MU, I needed to create a fake domain, which I called local.dev. It and all subdomains simply resolve to 127.0.0.1. Apache then directs to the correct folder.

I installed PowerDNS, and got it working properly with a MySQL backend. I didn't feel comfortable, but since it worked, I didn't ask any more questions. The bizarre thing is it requires an internet connection to resolve correctly, and now I need to use it offline.

If I am offline, Chrome provies the error:

Error 105 (net::ERR_NAME_NOT_RESOLVED): The server could not be found.

/etc/hosts

127.0.0.1 localhost

/etc/resolv.conf

nameserver 127.0.0.1
nameserver 8.8.8.8
nameserver 8.8.8.4

When I dig, I get the same thing, on or offline:

dig local.dev

; <<>> DiG 9.6.1-P2 <<>> local.dev
;; global options: +cmd
;; Got answer:
;; ->>HEADER<<- opcode: QUERY, status: NOERROR, id: 10635
;; flags: qr aa rd; QUERY: 1, ANSWER: 1, AUTHORITY: 0, ADDITIONAL: 0
;; WARNING: recursion requested but not available

;; QUESTION SECTION:
;local.dev.         IN  A

;; ANSWER SECTION:
local.dev.      120 IN  A   127.0.0.1

;; Query time: 0 msec
;; SERVER: 127.0.0.1#53(127.0.0.1)
;; WHEN: Thu Apr 22 15:32:51 2010
;; MSG SIZE  rcvd: 43

nslookup doesn't find local.dev in either case

nslookup local.dev
;; Got recursion not available from 127.0.0.1, trying next server
;; Got recursion not available from 127.0.0.1, trying next server
Server:     8.8.8.8
Address:    8.8.8.8#53

** server can't find local.dev: NXDOMAIN

PowerDNS config (comments removed):

allow-recursion=127.0.0.1
allow-recursion-override=on

If you need more information, I am happy to provide it.