"Those [length] restrictions aside, any binary string whatever can be used as the label of any resource record.
Dnsmasq should (MUST in RFC 2119 language) forward requests -- it would be a bug not to. The upstream resolver shouldn't (MUST NOT in RFC 2119 language) silently drop them -- it would be a bug if they did.
Brute forcing transaction/port ID collisions to poison the cache is a long known flaw in the DNS protocol (it has been known since at least 1993) that led to the creation of DNSSEC.
It wasn't until Kaminsky combined transaction IDs with additional data poisoning in 2008 --- an entirely novel attack --- that BIND began randomizing and gave up on holding out for DNSSEC. You'll notice that since 2008 DNS cache poisoning has basically vanished as a real operational security concern. That's not because of DNSSEC.
I think the Kremlinology here is super interesting and I'm happy to keep digging with you, but again: DNS spoofing was a live issue for a couple months in 1995, when it was resolved by QID randomization in BIND (and then QID+port randomization in djbdns), and then a live issue again for about a month and a half in 2008, when it was finally resolved by QID+port randomization in BIND. DNSSEC had nothing at all to do with it.