[Bug]: Directory monitor for localhost DNS fails if no resolver directory.

[jglogan]

I have done the following

• I have searched the existing issues
• If possible, I've reproduced the issue using the 'main' branch of this project

Steps to reproduce

In CI, many runners don't have an /etc/resolver directory set up, which causes the local DNS task to fail on API server start.

This results in an error during the test phase of the git action; theinstall-kernel make target fails on container system start.

The directory monitor must transition between two operational states:

• when the directory is not present, remove all localhost DNS entries, and poll until the directory is present
• when the directory is present, process any localhost DNS files and then monitor for changes

Current behavior

tests crash on CI while installing kernel

Expected behavior

tests run as expected

Environment

- OS: 26
- Xcode: 26
- Container: 0.9.0.2

Relevant log output

N/A

Code of Conduct

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