Two quick things about the email:
If you want to see what's going on do an:
strace -t -otracefile.text mail -v firstname.lastname@example.org
This will let you see the SMTP verbage (you should be connecting
to localhost by default now) and the "tracefile.text" will have the
system calls and timestamps for what was happening underneath
the covers. You'll the see the dns delays there (probably 4 5 sec
delays if that is the problem). Just watch for the big gaps in the
timestamps and see if they match a poll for the dns lookup.
As for where sendmail check for DNS, you can insert a file in
/etc/mail to reorder this. By default I believe the name is
/etc/mail/services.switch (configurable in the .mc file).
If you want to set it up for your /etc/hosts file first, the file
should have this line in it:
hosts files dns