That firewall rule should only block traffic from the WAN shouldn't it?
No, there's no property telling firewall to be selective with this regard. If you change it to
add action=drop chain=input dst-port=53 protocol=udp in-interface=ether1
it would be more selective.
Mind that "chain=input" is not about some fictional packet direction (routers don't have any idea of what's WAN, what's LAN, what's input etc.), it's about firewall processing chains. There are 3 of them by default (you can construct additional ones though): input (processes traffic targeting router itself), output (traffic generated by router itself) and forward (traffic that only passes router between any pair of interfaces). So both connections from LAN device and from internet targeting router (any of router's IP addresses actually) will be handled by input chain.