I ran a similar configuration on my NV 1234. Same results when it comes to NSLOOKUP. I enabled DNS Proxy. This can be done in global config via CLI by entering "ip domain-proxy", or by checking the "Enable DNS Proxy" check box in the Web GUI.
That allowed me to get responses via NSLOOKUP.
You can also run "debug IP DNS-PROXY" from the CLI on the switch to verify that your workstations are using your switch to resolve the names.
switch.bench#debug ip dns-proxy
switch.bench(config)#ip host example 10.10.10.210
DEBUG RESULTS when using NSLOOKUP from a workstation:
03:53:42:295 DNS.PROXY Received request from 10.83.4.194
03:53:42:297 DNS.PROXY Serving reply for "example" from hosts database: 10.10.10.210
03:53:42:299 DNS.PROXY Received request from 10.83.4.194
03:53:42:300 DNS.PROXY Serving reply for "example" from hosts database: 10.10.10.210
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