SQUID Proxy and IP routing

In order to provide internet connection ( http, www access, pop server access ) to the client running win 95,98,2000 pc through Linux 7.2 box, i have setup squid ( http,ftp services) and ipforwarding for pop and smtp services ( connect mail.something.com to send and receive mails from outlook).

my iptables rules includes
(1) Forwarding
iptables -t nat -A PREROUTING -o eth1 -j SNAT --to-source mystaticinternetip address

(2)transparent proxy - to direct my client browser request through proxy without setting manual proxy  in all client browser settings

iptables -t nat -A PREROUTING -p -tcp --dport 80 -j DNAT --to mylanaddress:3128

Above set up working fine, if i configure my client default gateway as my linux box and DNS entry same as my linux box ( provided by my ISP).

Now I am able browse net via squid and connect to the pop servers ( mail.something.com), telnet to outside server by domain name by having DNS entry at the client side.

But if i remove DNS entry at the client side, i am able to browse internet as the connection is via squid but my outlook connecting to smtp/pop3 server or telnet is not working as DNS entry is not available at the client side for resolving domain name to Ip address giving error "unknow host name".

Is there any way so as to do the above job without having any entry in DNS,Automatic DNS entry ( like for squid - without any gateway, DNS entry at the client side)

Now i am assigning ip address ,default gateway for my LAN through my DHCP server without going to every PC for configuring this entry.

But for DNS i have to go to every PC for doing above work.

Let me have some solution to overcome this so that without having DNS entry at the client side to resolve domain name.