GitHub user weizhouapache added a comment to the discussion: VM instances get 
VR's IP as DNS server but cannot resolve through VR


> @weizhouapache Yes, using an external dns server inside VR and VMs works 
> fine. The issue is that when VR is deployed it sets port=0 in 
> /etc/dnsmasq.conf which causes dnsmasq not to listen on port 53. Manually 
> uncommenting this line followed by dnsmasq restart makes it working fine. 
> This issue matters to us because on latest templates we have used cloud-init 
> which sticks on boot because it cannot find cloudstack data source. Logs on 
> that VM shows it is looking for data-server.cloud.internal for password and 
> user data.

@fnavidan 
I am able to reproduce the issue that data-server is not resolvable when 
use.external.dns is set to true

GitHub link: 
https://github.com/apache/cloudstack/discussions/11749#discussioncomment-14803584

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