|This does appear to be a issue with 2008 server and windows 7. I know I never had a problem with 127.0.0.1 as dns in tcp/ip properties with 2003 and below servers.|
I suspect it also does not pertain to SBS since it is a standalone DC
The inclusion of its own IP address in the list of DNS servers improves performance and increases availability of DNS servers. However, if the DNS server is also a domain controller and it points only to itself for name resolution, it can become an island and fail to replicate with other domain controllers. For this reason, use caution when configuring the loopback address on an adapter if the server is also a domain controller. The loopback address should be configured only as a secondary or tertiary DNS server on a domain controller.
What I find a bit amazing about this is replication should be pulling from AD and not from a local ip address listed under the local tcp/ip properties. Name resolution shouldn't involve the local tcp/ip properties.
Answers are only as good as the information you provide.
How to properly post a question:
Sorry no tech support via PM's