So, I have 5 IP addresses in my DNS forwarding list.

My assumption is that either forwarding would take place on a round
robbin basis, distributing forwarding requests to each of the
addresses in turn, or failover(TID10052480 from 2002), which would
attempt the second address if a request to the first address times out
(server DOWN).

Apparantly neither is the case, since when the DNS server on the first
address listed goes down, all external resolution stops.

Is my thinking wrong, or is the list of addresses useless (other than
the first entry), or does it serve some other purpose, or is it a
known issue, or is there a fix?

NW 6.5 SP 2
NAMED 6.03.06