Local DNS not resolving local hostname but DIG does

I cannot figure out why this behavior. I have two pihole instances running in docker containers on 10.0.2.205 and 10.0.2.206 (sync'd). Running resolvectl status on the local pc/server results in the correct DNS Resolvers being used, including the tertiary IP 1.1.1.1; all handed out by my DHCP server. Both local DNS (pihole) resolve as expected.

My problem, I spin up a new server and run into this issue every time and I would like to once and for all be done with this. I don't think this should require overwriting the /etc/resolv.conf file every time I spin up a server.

The server can ping whatever, just nothing that is set as a local DNS entry in pihole. However, I can dig @10.0.2.205 <local_hostname> and get a result/IP. So the DNS resolver returns the IP address for the local DNS entry for the local hostname, as expected. But I can't ping the DNS hostname. If, however, I overwrite the /etc/resolv.conf (as mentioned before) with the IP address of one or both of the pihole resolvers, then all works as expected. So I don't believe this to be a DNS resolver issue but a local issue with systemd-resolved.service or other. I've seen numerous discussions on this topic and have come to the conclusion that there's still much confusion and no real clear and straight forward answers/fixes. That I've found anyway. Any experience and info to resolve this would be most appreciated. Please advise. Thank you very much

Server info:

noc@TestingServer:~$ hostnamectl 
   Static hostname: TestingServer
         Icon name: computer-vm
           Chassis: vm
        Machine ID: 5ab2c4f3f6d2413a9684ada5dc6e87af
           Boot ID: 1f73d83492724511821bdf91a6a8cdf1
    Virtualization: kvm
  Operating System: Ubuntu 20.04.3 LTS
            Kernel: Linux 5.4.0-91-generic
      Architecture: x86-64

**/etc/hosts (default from initial installation) **

noc@TestingServer:~$ cat /etc/hosts
# Your system has configured 'manage_etc_hosts' as True.
# As a result, if you wish for changes to this file to persist
# then you will need to either
# a.) make changes to the master file in /etc/cloud/templates/hosts.debian.tmpl
# b.) change or remove the value of 'manage_etc_hosts' in
#     /etc/cloud/cloud.cfg or cloud-config from user-data
#
127.0.1.1 TestingServer TestingServer
127.0.0.1 localhost

# The following lines are desirable for IPv6 capable hosts
::1 ip6-localhost ip6-loopback
fe00::0 ip6-localnet
ff00::0 ip6-mcastprefix
ff02::1 ip6-allnodes
ff02::2 ip6-allrouters
ff02::3 ip6-allhosts

Command line

noc@TestingServer:~$ ping docker1
ping: docker1: Temporary failure in name resolution
noc@TestingServer:~$
noc@TestingServer:~$ ping docker2
ping: docker2: Temporary failure in name resolution
noc@TestingServer:~$
noc@TestingServer:~$ ping docker3
ping: docker3: Temporary failure in name resolution
noc@TestingServer:~$
noc@TestingServer:~$ cat /etc/resolv.conf 
# This file is managed by man:systemd-resolved(8). Do not edit.
#
# This is a dynamic resolv.conf file for connecting local clients to the
# internal DNS stub resolver of systemd-resolved. This file lists all
# configured search domains.
#
# Run "resolvectl status" to see details about the uplink DNS servers
# currently in use.
#
# Third party programs must not access this file directly, but only through the
# symlink at /etc/resolv.conf. To manage man:resolv.conf(5) in a different way,
# replace this symlink by a static file or a different symlink.
#
# See man:systemd-resolved.service(8) for details about the supported modes of
# operation for /etc/resolv.conf.

nameserver 127.0.0.53
options edns0 trust-ad
noc@TestingServer:~$
noc@TestingServer:~$
noc@TestingServer:~$ resolvectl status | grep -A2 -E 'DNS Server'
  Current DNS Server: 10.0.2.205
         DNS Servers: 10.0.2.205
                      10.0.2.206
                      1.1.1.1
noc@TestingServer:~$
noc@TestingServer:~$
noc@TestingServer:~$ dig @10.0.2.205 docker1

; <<>> DiG 9.16.1-Ubuntu <<>> @10.0.2.205 docker1
; (1 server found)
;; global options: +cmd
;; Got answer:
;; ->>HEADER<<- opcode: QUERY, status: NOERROR, id: 37841
;; flags: qr aa rd ra; QUERY: 1, ANSWER: 1, AUTHORITY: 0, ADDITIONAL: 1

;; OPT PSEUDOSECTION:
; EDNS: version: 0, flags:; udp: 4096
;; QUESTION SECTION:
;docker1.           IN  A

;; ANSWER SECTION:
docker1.        0   IN  A   10.0.2.10

;; Query time: 0 msec
;; SERVER: 10.0.2.205#53(10.0.2.205)
;; WHEN: Sun Dec 05 09:29:04 MST 2021
;; MSG SIZE  rcvd: 52

noc@TestingServer:~$ ping google.com
PING google.com (172.217.11.174) 56(84) bytes of data.
64 bytes from lax28s15-in-f14.1e100.net (172.217.11.174): icmp_seq=1 ttl=116 time=46.1 ms
^C
--- google.com ping statistics ---
1 packets transmitted, 1 received, 0% packet loss, time 0ms
rtt min/avg/max/mdev = 46.132/46.132/46.132/0.000 ms
noc@TestingServer:~$
noc@TestingServer:~$
noc@TestingServer:~$ sudo su
root@TestingServer:/home/noc# echo -e "nameserver 10.0.2.205\n" > /etc/resolv.conf
root@TestingServer:/home/noc# exit
exit
noc@TestingServer:~$
noc@TestingServer:~$ ping docker1
PING docker1 (10.0.2.10) 56(84) bytes of data.
64 bytes from docker1.local (10.0.2.10): icmp_seq=1 ttl=64 time=0.617 ms
^C
--- docker1 ping statistics ---
1 packets transmitted, 1 received, 0% packet loss, time 0ms
rtt min/avg/max/mdev = 0.617/0.617/0.617/0.000 ms