Not true. dnsmasq will read /etc/hosts (or another file with the same format, if you prefer) and serve both forward and reverse lookups from it. It'll lookup and cache anything it can't resolve from local files. I use it all the time for providing local DNS views on private networks. It's a nice, lightweight solution. It also comes with an integrated DHCP server. It's a very handy thing to run on a box that's serving as a NAT gateway.