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Configure DNSMASQ to use /etc/hosts file

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http://askubuntu.com – I have installed DNSMASQ but it was not starting as 53 port was busy. I found out that ubuntu already had dnsmasq package and it's working. Now the problem is...I just want to be able to resolve my hosts in /etc/hosts through it i.e: nslookup somehostonlan localhost to be resolved to certain IP taken from /etc/hosts file. but this is not happening. Why? BTW, as the caching DNS server it's working fine. I just want it to resolve hosts from /etc/hosts file that's all (HowTos)