I set up ICS (internet connection sharing) on my Windows Server 2003, which is acting as a domain controller for the network. When client workstations try to connect to the internet, they cannot, and by using Network Monitor I saw a DNS frame sent from the server to the client workstation with this description: "0x4D:Std Qry Resp. : Server failure". The server itself has no problem connecting to the internet. Client workstations CAN connect to the internet if they use the acual IP Adress of the website, so DNS appears to be the problem. There is nothing in the DNS console to suggest a problem, and the server is set to use Recursive Queries, as indicated in the frame packet.

In the TCP IP setting for the network do you have the DNS and default gateway pointing to itself? They need to be.

just remove dns zone "." from your dns server, then enable dns forwarder as a double security. works for me at least. good luck.