I have a Mountain Lion Server (10.8.2) that will not resolve DNS names (coming from 2 different Windows 2008 DNS Servers) unless you use the FQDN.
Returns "Got servfail reply from <dns server ip>, trying next server"
Returns correct IP address.
I tried adding the argument "-AlwaysAppendSearchDomains" to the mDNSResponder plist, does nothing. I flushed DNS cache, nothing. All DNS server addresses are correct on the Mac Server.