Well, I'd say if you can ping the server by it's host name (not 'localhost' right?), DNS is working. I'd check the DNS servers your SME is pointing at for external (internet) name resolution.
For internal name resolution... How are you assigning your static IP's? If you're using DHCP with an IP assignment based on the requesting machine's MAC address, you might want to check that your DHCP is sending the proper DNS IP address. If you've setup your clients with all manual entries for IP and DNS, I'm pretty sure you'll need to include the client names/IP's in your servers hosts file for local network name resolution. I don't know if SME requires templates for that or not.
DNS will cache lookups for a while, my guess is it worked initally, then a minor change was made and it took a couple weeks for the cached DNS entries to drop.
I found that DNS/DHCP issues are such a pain to deal with on Linux that I use a Windows server for integrated DHCP/DNS/WINS services (DON'T FLAME ME! I'm new to Linux, been working with MS for years - I'm learing but it's a pretty steep curve). IP's are assigned dynamically and their names are automatically entered in DNS and WINS. The win box has my ISP assigned DNS IP's as forewarding DNS addys which handles external name resolution.
I hope you'll let us all know what you find out...