You don't need to set `listen-address=127.0.0.1` in /etc/dnsmasq.conf;
dnsmasq listens on that address by default.

If dnsmasq is not being used then you have a nonstandard configuration.
If you do not need a nonstandard configuration then I suggest that you
purge the dnsmasq package and reinstall it.

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https://bugs.launchpad.net/bugs/1229023

Title:
  Nameservers are not setup correctly

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