|"actually a friend setup this server. thats what he suggested.|
i guess this is done to monitor net usage, like using ISA server or something."
Your friend misinformed you. You can't monitor or use ISA with those ip addresses. Pointing dns to the loopback ip is wrong.
Correct setup would be as follows
LAN Card A:
Default Gateway: 192.168.4.1
Preffered DNS: 192.168.4.2
LAN Card B:
Default Gateway: Blank
Preffered DNS: Blank
Alternative DNS: Blank
This server would provide dhcp to the workstations and the ips it hands out would look like this:
Default Gateway: 192.168.1.1
Preffered DNS: 192.168.1.1
You would engage RRAS to route between the two nics.
This setup also assumes you are running Active Directory and DNS/DHCP server.