The issue: the avahi daemon. As I understand it, it grabs the .local domain as its own and interferes with ping, RDP, and other communication when using the fully-qualified .local domain names. There are two fixes I know of:
- Disable avahi. I understand this can interfere with apps that use avahi, so...
- Edit the hosts line if /etc/nsswitch.conf to read:
hosts: files mdns4_minimal [NOTFOUND=return] dns mdns4
hosts: files dns mdns4_minimal mdns4