resolver appends local domain name

[Alexander Bolovan]

On Sun Solaris 8 with BIND 9.2 -
- system is configured as cache-only server
- system needs to know about a few internal nodes which are configured
in /etc/hosts file
- name resolution is using forwarders at the ISP
Issues:
- nslookup does not seem to be using /etc/hosts as name resolution
fails for all systems configured in the file
- resolver adds the local domain name to any domain names it cannot
resolve
- this issues cause in turn issues with Sendmail which I have to run
on the same system
Questions:
1) is there a way to make nslookup use hosts file ?
2) how can I prevent the local domain be added to the domain names for
whom name resolution fails ?
( Example of the issue:
# nslookup
Default Server:  localhost
Address:  127.0.0.1

> piatra.com
Server:  localhost
Address:  127.0.0.1

Name:    piatra.com.mydomain.com  <--- ? 

>
Below are the related configuration files.
Any help will be greatly appreciated. 
Thank you.

Configuration files:
resolv.conf 
------------
domain mydomain.com
nameserver 127.0.0.1
nameserver ip-address1-at-isp
nameserver ip-address2-at-isp

nsswitch.conf
-------------
includes the line
hosts: files dns

named.conf
----------
options {
        directory "/etc";
        forwarders { ip-address1-at-isp; ip-address2-at-isp; };
};
zone "." {
        type hint;
        file "db.rootcache";
};

zone "0.0.127.in-addr.arpa" {
        type master;
        file "db.127.0.0";
        notify no;
};

db.127.0.0
----------
;
; db.127.0.0
;
$TTL    86400
@       IN      SOA     mysystem.mydomain.com. postmaster.mydomain.com
 (
                                 1025021624 ; Serial
                                 28800      ; Refresh
                                 14400      ; Retry
                                 3600000    ; Expire
                                 86400 )    ; Minimum
             IN      NS      mysystem.mydomain.com.
1            IN      PTR     localhost.