After applying the latest Rollup 1 for UAG SP1 Update 1 released on Jan 12, 2012 I noticed that the DNS64 is unhealthy under the Direct Access Monitor/Current status as shown in the below figure.
DNS64 not healthy
I did a reboot to the UAG/Direct Access server (although it’s not required by the fix) however the DNS64 component still showed unhealthy. I disabled/enabled direct access as follows:
1.     Disabled Direct Access
2.     Saved/Activated the configuration
3.     Enabled Direct Access
4.     GPupdate /force on the UAG Server
5.     Applied the policy
6.     Activated the configuration
After that it all worked fine. I am not sure about the reason (Will try to check with Microsoft Team) however that workaround fixed my problem.