I am setting up an isolating proxy. Machine 1 is connected to the Internet, runs tor and has SOCKSPort and DNSPort configured to listen on a network interface that is a direct connection to Machine 2.
Machine 2 tunnels all TCP traffic through the SOCKS server on machine 1, and uses the DNS server on machine 1 for address resolution.
Everything works fine for non .onion services. The DNS server built into tor refuses to resolve .onion addresses though. What am I doing wrong?