Setting up a private, internal or test network and have Mac clients? Do not use .LOCAL!
I setup my Windows 2008 domain as .LOC – worked like a charm and my Mac clients were happy.
Apple Support: Mac OS X: About Multicast DNS
Note: If you have set up a private DNS server that resolves names in the .local domain, computers using Mac OS X 10.2 will not use the DNS server to resolve these names. This may result in unexpected failures to connect to hostnames defined by your server. You should use a different domain, such as .home, .office, or .lan for DNS on private networks.
Microsoft Technet: What should I name my server and internal domain?
If you have a Macintosh computer with OS X 10.3 and higher on your network, you must specify an AD DS name extension for the internal domain other than .local. The Rendezvous Service on Macintosh computers with OS X 10.3 and higher use .local to discover other computers on the network. If you continue the installation without specifying a different AD DS name extension, you must perform the workaround that is discussed in “Connecting Macintosh OS X 10.3 and Higher Clients to a Windows Small Business Server 2003 Network” at the Microsoft Web site (http://go.microsoft.com/fwlink/?LinkID=39689).
Mac OS 10.5.8 screenshot showing default of .local for local network access.