Fair enough. Unbound is performing the look ups recursively so its has more room for potential failures.
I'm afraid I'm running out of ideas to check. I did see a comment @deHakkelaar posted on a similar issue. He mentioned running nslookup -class=chaos -type=txt version.bind 127.0.0.1 to ensure pihole was getting queried. I imagine that it is as it seems to work but just not to local host which I'm scratching my head on.