Hi,
I ahve a similar setup, with a router and the sme server. I have three dns servers, the router provides a dns server that gets its information from the isp dns servers. My SME box gets the dns information from the root servers, which means it is much quicker, and the dns much faster (as my ISP doesn't really support the DNS servers), and another DNS server which is a desognated primary for my domains. This is set not to use recursion, and internal clients don't use it.
The SME does the DHCP, giving itself as the DNS and the router as the gateway. The router dns is used as a backup, if the SME box fails, but is normally not used, and as I said the public dns server is not used for recursion.
Because the SME is the default DNS server for internal clients, mail.hodgsonfamily.org gets pointed to the internal ip of the SME box, and externally, mail.hodgsonfamily.org points to the ip address of hodgsonfamily.org, which is specified by my public DNS server. No hosts files required!!!
Andrew.