The /etc/log.d/scripts/services/kernel script tests $ENV{'named_ip_lookup'} to see whether it should resolve IP addresses to hostnames. However, the /etc/log.d/conf/services/kernel.conf states that the appropriate variable to set is $kernel_ip_lookup.
Created attachment 83144 [details] Make scripts/kernel look at the correct variable.
This bug report is for logwatch-4.0.3-2. (I couldn't find a more recent version anywhere.)
applied, thanks.