Internet Explorer has the annoying habit of silently ignoring your proxy settings if it encounters a problem, which makes supporting and diagnosing the problem a pain in the proverbial.
What makes it even more difficult is the way Internet Explorer interprets the proxy settings has changed from version to version. Settings which worked in Internet Explorer 6 will fail in Internet Explorer 7. So make sure in a corporate environment you fully test the settings before you push out a new version of Internet Explorer to 1000 desktop PCs only to find they can no longer access the internet. The most common setting to fail is the exceptions list.
The general rule of thumb is do not use special characters such as * in your exception list. As mentioned before they may of worked in an earlier version of Internet Explorer but will bring later versions to a screaming halt. A simple test is to remove your exception list and then verify that internet requests are proceeding through the proxy. If the problem isn’t obvious add the entries back in one by one to find the offending entries.