I would like to see a possibility to add single-name hosts instead of a full domain name. In this way I can resolve "router" instead of "router.local". I guess this would be pretty easy to implement even?
Resolving unqualified DNS names is a function of the client, not the server. In the m0n0wall "general setup" page, what do you have for "domain"? If that's set to "local", all the clients should be getting it as their default domain and/or DNS search suffix, so when you ask any of them to resolve "router" they should already be trying "router.local".