Is this a DNS server for internal use only? Then the resolv.conf of the client
PC's should point to the DNS server. The resolv.conf of the DNS servers however should point to a real DNS server (like 126.96.36.199 and 188.8.131.52 - Google's nameservers).
Also the DNS servers need to point to the internal IP addresses correct?
If this is for internal use only, then yes.