I followed the recommendations outlined here:
http://www.comptechdoc.org/os/linux/usersguide/linux_ugbasicnet.html for
network setup and also for the DNS setup. Everything seems to be in order
but the DNS server is just not answering anything on the network.

In Fedora 5 the network config files are
/etc/sysconfig/network-scripts/ifcfg-ethx (x is the interface number) I set
PEERDNS=no and that prevents dhcp from changing the resolv.conf file. So
that question is solved. However, DNS still is not answering on my network.

> 
> Add a logging rule just before dropping packets for a given chain.
> 
The policy is initially set to DROP, so I don't really know how I'd do that.
The firewall setup is pretty simple. There are a few INPUT rules that allow
anything on eth1 and loopback and anything on eth0 where state is
ESTABLISHED,RELATED. A FORWARD rule to pass along anything from eth1 and
anything ESTABLISHED,RELATED. A few OUTPUT rules for the loopback and local
interface ips. And lastly a POSTROUTING in the nat table for MASQUERADE.
That's it. (I could post the whole set of rules if it would be helpful.)

The initial policy is set to DROP. So I don't really know how to put
anything ahead of that.

btw - I'm using Fedora Core 5 (runlevel 3 - no GUI installed)