DNS in-house or at ISP!!!!

just install the inturnal dns on your server. Active directory will populate most. Configure any dns listings that you have for your domain.
On your dns use the forwarding address to point to the isp dns server. The computers will look at your dns, if it has not record it will forward out to the world to resolve. This is very easy to setup and get going. it will almost do it itself.
Just remember to set the forward addresses , hopefully you know at least two.

When setting up AD, you will be asked what DNS server is hosting your DNS domain. If all you have is an IP address from your ISP, they aren't hosting anything for you and AD will not work correctly.

Issues with having an ISP host your DNS:
1. You must have a registered domain name for them to host.
1. Active Directory requires that the DNS server hosting it accept dynamic DNS updates. Depending on what your ISP is using to host DNS, it may not be capable of doing so.
2. Active directory creates a plethora of new DNS records on the server that your ISP may not want to accept in their DNS tables.
3. There is some added bandwidth overhead for a DNS server hosting an AD domain. For a single domain, that overhead may be acceptable. Multiply that overhead by the number of clients that an ISP normally hosts and simple math shows how bandwidth usage could quickly get out of control.
4. Your ISP may simply refuse to host your AD domain. Many ISPs may consider setting up a domain as business usage. If you don't have a business account with the ISP, they would be within their rights to simply cancel your account (depending on the user agreement you signed).

You need to talk with your ISP to see if 1. they will accept hosting an AD domain; and 2. what what settings you need to use to properly access their DNS.

By the way, since you haven't configured AD yet, you have neither a Win2K domain controller nor a Win2K domain for that matter.