I setup a Server 2012 R2 VM on my green zone, disabled DHCP on NS, and enabled DHCP and DNS on the Server 2012 VM. After creating the following wpad DHCP option(as well as setting the path in the wpad.dat to use IP rather than hostname), everything appears to be working in the Windows 7 VM (including Windows Update and other system services).
However, Firefox on the Windows 7 VM doesn’t work and the Ubuntu VM doesn’t work. I found this: http://findproxyforurl.com/common-wpad-issues/
So it appears that a DNS wpad entry is required. Server 2012 ignores wpad queries by default for security, so the following command needs to be run to remove that block:
dnscmd /config /globalqueryblocklist
Note: this command clears all blocks. By default there are two: wpad and isatap. To remove wpad and keep isatap, run the following command instead:
dnscmd /config /globalqueryblocklist isatap
Once that was done, I created an A record to point the hostname wpad to the NS IP…but still had issues. Once I modified the 015 “DNS Domain Name” DHCP attribute and added the local domain name of “lan.local”, everything started working. I believe I had to do that because I setup DHCP on this test server before creating the domain. It would normally be setup automatically.
Two things that I can take away from this testing experience:
Use NethServer for DNS and DHCP if at all possible if you plan on using WPAD to avoid this headache
WPAD should be setup to use IP address rather than hostname. Everything routes properly using IP address and it would prevent even more DNS entries from being created.