When you play "Valve Anti-Cheat" (VAC) enabled games, you agree to allow Valve to scan your computer for evidence of cheat/hack programs. This is what VAC does. It's like Punkbuster, Warden, etc - depending on your point of view, it tries to level the playing field for multiplayer games, or it is an invasion of privacy because you have the right to cheat all you want.
Valve's VAC, Blizzard's Warden, etc are all "spyware" by definition. Their job is to find and collect evidence of suspected game-tampering cheats, both known and unknown, and report them. They already sniff your running processes, window titles, loaded drivers, USB devices, filesystem, etc. Scanning your local DNS cache is probably one of the least invasive things that VAC does, *and it only happens when you play games which advertise the VAC feature*.
If you don't like this, don't play VAC-enabled multiplayer games. It's that simple.