Actually we found that the default config for recursive lookup in mydns.conf was a * or blank - I think that it was a * - I am not sure if that was meant to be changed as part of the installation process, but obviously setting it to an IP address was a good idea because dig started to work after that.
However there were still issues with not being able to ping hosts, even from the server where they were hosted, so we decided that it was too problematic to continue and stopped the project.
As I said, it is a pity because I actually like the new ISPconfig. Too bad!!