@tehcnique DNSMASQ can be installed on the same server as FOG or on a different linux server. It will work well in either case as long as the target pxe bootng computers are on the same subnet as the dnsmasq server. If the pxe booting computers are on a different subnet then you must make a change on your router to make it work.
What configuration file are you using for dnsmasq? It would be helpful if you put it in your post. DNSMASQ can do a lot of things so the configuration file is important to have it correct.