Domain Forwarding on OpenWrt/Dnsmasq

Hello,

I'm trying to make dnsmasq on my WRT54G (OpenWrt Whiterussian RC5)
forward domain names from the router to machines "behind" the router.

Here's an example of my setup:

"router" is the OpenWrt machine, providing DHCP to the 192.168.1.x
network. It has an IP of 192.168.1.1

"machine" is a client machine behind the router. It gets its IP
address via DHCP from dnsmasq on the wrt.

I have an external DNS server pointing "router.example.com" to the
router's static WAN IP. I also have machine.example.com pointing to
that same IP. I want dnsmasq to "forward" machine.example.com to the
client machine.

What I have so far is working, but only from inside the 192.168.1.x
network. From the outside, machine.example.com points to the router's
info page instead of the client machine.

Here's my /etc/hosts, pretty straightforward:

127.0.0.1 localhost OpenWrt
192.168.1.1     router
192.168.1.2     machine # forces pseudo-static IP address for client machine

Here's my dnsmasq.conf, sans comments:

domain-needed
bogus-priv
filterwin2k
localise-queries
local=/lan/
domain=example.com
expand-hosts
dhcp-host=router
dhcp-authoritative
dhcp-leasefile=/tmp/dhcp.leases
read-ethers

The only thing I can think of is changing the local line to say
local=/example.com/. Right now, if I ping another machine from inside
the network, the hostname for that machine shows up as machine.lan.
Would this be my problem (part of the default OpenWrt install)?

TIA,

--
Christopher C. Parker
http://cparker15.com