Yet another conditional forwarding / client name not populating issue

The issue I am facing:
client hostnames not populating

Details about my system:
--Hardware--
UniFi Dream Machine Pro:
Firmware v1.9.1
Network Controller v6.1.67.0
UAP-nanoHD X2
v5.43.23.12533
UAP-BeaconHD
v5.43.23.12533
US-8
v5.43.23.12533
US-8-60W
v5.43.23.12533
US-24-G1
v5.43.23.12533

--Network--
Dream Machine providing DHCP & egress
4 VLANs - three on 10.0.X.0/24 one 192.168.1.X/24
PiHole on VLAN 201 w/IP 10.0.2.2. All VLANS point to PiHole for DNS
Most clients, excluding IoT are on VLAN 201

--PiHole--
Conditional forwarding configured to Dream Machine DHCP server on 10.0.2.1
PiHole DNS configured to use dnscrypt-proxy listening on port 5054
I have tried wiping PiHole and reinstalling with no luck.

What I have changed since installing Pi-hole:
Things worked in the past. Moved to new paspberryPi hardware using the same SD card.
debug token https://tricorder.pi-hole.net/li4f1sakt7
created /etc/dnsmasq.d/99-local.conf based on a writeup from https://practical-admin.com/blog/my-pi-hole-configuration/

local=/lan/
server=/localnet.lan/192.168.1.1
rev-server=192.168.1.0/24,192.168.1.1
server=/ggc.lan/10.0.2.1
rev-server=10.0.2.0/24,10.0.2.1
server=/iot.lan/10.0.3.1
rev-server=10.0.3.0/24,10.0.3.1
server=/lrgw.lan/10.0.4.1
rev-server=10.0.4.0/24,10.0.4.1
rebind-domain-ok=/localnet.lan/gcc.lan/iot.lan/lrgw.lan/
expand-hosts
server=/use-application-dns.net/

reviewed post https://discourse.pi-hole.net/t/extra-dhcp-server-options/6416/5
Added VLAN support

sudo apt-get install vlan
sudo su
echo 8021q >> /etc/modules

--Update--

Oddly, I stumbled across a solution.
I have a firewall rule in LAN Local blocking all DNS traffic. This was the last rule. I had other rules preceding the block rule allowing DNS TCP/UDP 53 from specified networks to the PiHole. All DNS queries worked as expected as configured.

I disabled the explicit rule blocking DNS and all of a sudden local clients host names started populating in PiHole.

My brain is stuck on WTF since DNS was working as expected with explicit rules but PiHole was not resolving local client hostnames.

Thoughts?

FWIW, I have my UniFi FW rules configured to allow DNS requests to my Pi-holes for each VLAN that I wanted to have access to them. I did this with LAN In rules. This also allowed local clients on any of these VLANs to appear in the Pi-holes.

The only reason, for me, to use LAN Local rules is to block any VLAN traffic for specific protocols to the respective VLAN gateways.

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