Opening as requested by @pemensik. I'm pursuing systemd/systemd#39800 instead for my use case. The only fix in nss-mdns I can see is, as I said:
The only solution [here] is changing UNAVAIL to NOTFOUND upon detecting .local, but that's an actual breaking change affecting the behavior of /etc/nsswitch.conf for others whose intranet DNS server responds to .local.
Opening as requested by @pemensik. I'm pursuing systemd/systemd#39800 instead for my use case. The only fix in nss-mdns I can see is, as I said: