Problems with DNS on my U-Verse (VDSL) connection.

I recently got an AT&T U-verse (VDSL) connection at home (I could not
resist 24 mbps down!). When I connect to the 2Wire 3600 HGV modem/router
(DHCP) DNS is set to 192.168.1.254 in Network Manager which is the
routers own IP address and not the DNS server address(es) the modem uses
which is (read from the modem/routers config UI):

Primary DNS 68.94.156.1
Secondary DNS 68.94.157.1

This doesn't cause problems for web browsing and such, but it breaks apt
with the following error message when I for instance run sudo apt-get
update

W: Failed to fetch http://archive.ubuntu.com/ubuntu/di...elease.gpg
Something wicked happened resolving 'archive.ubuntu.com:http' (-5 - No
address associated with hostname).

Looks like apt can't "see through" this setup.

The only way around this problem is to set DNS manually in Network
Manager (using Google, OpenDNS or AT&T's own) for the wireless
connection I am using. When I do this apt works fine and I can update
without errors.

I'm no network guru so I was wondering why DNS is set to the
router/modems own IP and not to the DNS servers actually used? Is this a
modem/router problem or is it Network Manager setting it up wrong? Since
I do not have any Windows machines around I can not check if the same
things happens there.

I'm running latest Ubuntu/Mint.