We would like to upgrade to Windows 2000 and Active Directory, but we don't know how to reconcile the requirements...
for Windows 2000 DNS (SRV records) with the external DNS. We do not have a registered domain name.
If we manually configure the local area network IP settings with the Win2k DNS server as primary and the ISP's DNS as secondary, will the client machines still resolve Internet IP addresses, or are there other configuration considerations to be taken into account?
This article on how to integrate DNS with existing DNS infrastructure if Active Directory is enabled in Windows 2000 should answer the rest of your questions.
Ideally, your clients would be configured to use your Windows 2000 Server system as their primary DNS, with the ISP's DNS as a secondary DNS server. Configure the Windows 2000 Server system to forward requests to the ISP.
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