Comment 7 for bug 1326536

Did some more testing (found how to adjust libvirts dnsmasq.conf and restart it to pick up conf changes):

To test, get the dnsmasq pid using the vagrant-libvirt.conf config and check the environment set for the process with:
sudo cat /proc/2586/environ
VIR_BRIDGE_NAME=virbr0

After killing the relevant dnsmasq you can manually restart using
sudo VIR_BRIDGE_NAME=virbr0 /usr/sbin/dnsmasq --conf-file=/var/lib/libvirt/dnsmasq/vagrant-libvirt.conf --leasefile-ro --dhcp-script=/usr/lib/libvirt/libvirt_leaseshelper

Just make sure to check the environment for the dnsmasq process before

Adding entries with the following format to the libvirt dnsmasq.conf:
host-record=<short>,<fqdn>,<ip>
interface-name=<short>,br0

And have entries with the following format in /etc/hosts
127.0.0.1 localhost
127.0.1.1 <fqdn> <short>

and nslookup and dig returns the configured <ip> for both short and fqdn instead of 127.0.1.1 as it used to.

It appears that host-record overrides entries read from hosts-files because record options are considered to be read before host-files, and only the first entry results in the PTR creation, so a name appearing in the host-record inhibits PTR-record creation based on the entries in /etc/hosts.

I also tried using:
host-record=<fqdn>,<ip>
host-record=<short>,<ip>

Basically without the interface-name being specified and dig/nslookup would start returning two records. So it means that 'interface-name=<short>,br0' appears to be required to prevent the short version from returning both records.

It would seem that the alternative would be to create a local copy of /etc/hosts pruned of all loop back address entries and provide that as the hosts file to read instead.