Internet Explorer (5.2 on Panther) Proxy Problem???

[DEfusion]

Ok I can connect via the proxy to websites fine in IE 5.2 on my Panther install.

However connecting to the local development machines (even though they are setup as excludes in the proxy settings) doesn't work...

Example:

http://www.google.com --- working
http://localhost/ --- not working

Any ideas, as Safari is perfectly happy connecting to the local machines.

Thanks in advance,

-D