Better yet, just replace what is in /etc\resolv.conf with "nameserver 127.0.01" and then it works as intended on the router to pass first through dnsmasq and then on to unbound (or whatever upstream DNS resolver) that dnsmasq is configured to use.
Oddly, it is not even necessary to remove no-resolv from dnsmasq.conf suggesting that the firmware is doing this for the native router host despite the no-resolv directive but does honor the no-resolve directive for external client access via port 53 so that a DNS loop does not develop. It's kind of a strange two way split, but its works once configured.
Even fixed IP addresses (really bad network management) can be kept in dnsmasq.conf[.add], but dynamic IP and hostname is much better practice (exporting/importing DHCP_clients through the DHCP GUI with YazDHCP makes this easy). Also a quick device inventory with MAC addresses and network identification can be made with Network->Map-View List to export DHCP_clientlist. I don't know if this is documented and I just missed it but it would be good to have it one place that is easy to find. Anyone setting up a home lab with a Media server, Homeassistant, NAS/DAS, multiple IOT devices and maybe unraid, OMV, or opensense will want to know it. I have seen painful opsense threads where they try to figure it out using DNSMasq and unbound or other resolvers.
Last question, /etc\resolv.conf symbolically links to a temp file created by the firmware. How to make sure the lookback and nothing else persists between boots?
Update: Tried setting WAN router to local network which worked for local devices (the router too, thank heavens) but cut out unbound. So it is not quite the same as editing /etc/resolv.conf.
Found work around: Use hosts.postconf to force the loopback name server entry in /etc\resolv.conf. The firmware appears to several times to force its WAN dns entries into /etc\resolv.conf but it can be successfully overridden.
Why not offer 127.0.0.1 as acceptable WAN dns address in the GUI instead of rejecting it? It is actually the way to make DNS work as (reasonably) expected by most use cases which will want dnsmasq on the router as well as clients to resolve internal address. [Admittedly some put unbound on 53 and configure fall back to dnsmasq on some other port (like 5053) but that seems clumsy and potentially dangerous if an internal domain might resolve externally.]