I am having this issue on Feisty and found this bug thread today.
avahi-daemon 0.6.17
When I stop the avahi-daemon using:
"sudo avahi-daemon -k"
I am able to ping things.mydomain.local
When I start it again using:
"sudo avahi-daemon -D"
pings to things.mydomain.local stop working.

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problems resolving fully qualified domain names on Kubuntu feisty
https://bugs.launchpad.net/bugs/80900
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