Removing 127.0.0.1 from resolv.conf was an intentional decision. Pinging @DanSchaper once again for his opinion on this. This shows a consequence that wasn't (at least to me) clear.
If the Pi-hole device needs to use 127.0.0.1 then the users can set their network to use that. Might be /etc/network/interfaces, or /etc/dhcpcd.conf or NetworkManager, or Netplan, or ...
The end result is that users have the control back to set it as they want their networks configured.
Edit:
The change was meant to not force the Pi-hole server to solely use 127.0.0.1 with our changes to override /etc/resolv.conf. Does 127.0.0.1 needs to be added to the existing /etc/resolv.conf instead?
What is the issue being seen here? The web interface needs to use FTL in order to display custom client names?
I like the idea that the host becomes a bit less dependable on the pihole-FTL process.
But for proper names to show up, the users have to be aware of this somehow.
nameserver in resolv.conf needs to resolve on the host doing DHCP or else no names on the GUI.
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Can we have the web interface use ftl then?
I dont know how the two are linked as you need to restart FTL after correcting 127.0.0.1 to have the names show up.
The resolving uses system functions (gethostbyaddr) as we haven't implemented our own DNS client. Unfortunately, the native Linux name resolution commands cannot be instructed to use specific DNS servers. They will just use what the system decides to use.
I see no issues.
User needs to set conditional forwarding or use Pi-hole for DHCP to have names instead of IP's.
No it doesn't.
You probably run a desktop on the Pi-hole host.
Look for network settings and change it into one DNS server 127.0.0.1
EDIT: or disable network-manager:
sudo systemctl disable network-manager
And reboot.
I think if at least one custom DNS entry is set via the web interface it should be added to make sure it is displayed properly in the web interface itself.
No, this is currently broken as well. From the point we removed 127.0.0.1 we basically also removed the ability of FTL to resolve local host names.
Then we're back to the issue of "How do we add the resolver."
Makes you go crazy doesnt it 
It doesn't. Why should it? It is an unintended side effect and such things happen in life. It is good that we found this during the beta.
Crazy to wrap your head around it and find a neat solution 
Cant the web GUI do it all ?
I mean the GUI is aware of settings like who is doing DHCP, cant it redirect its local PTR queries to the DHCP host ?
Yes it could, but this seems to enforce us to implement our own DNS client. When you use system-provided name resolution routines, they will always check:
Is it hard to chroot those "system-provided name resolution routines" and put your own resolv.conf in the chroot ?
EDIT: naaa.
KISS!
Yes. 12345