Hosts file not working

It might be the proxy, or it could be a local dns setting. If you post a hijackthis log we might be able to help.

Logfile of HijackThis v1.97.7
Scan saved at 3:53:03 PM, on 6/7/04
Platform: Windows 95 B (Win9x 4.00.1212)
MSIE: Internet Explorer v5.51 SP2 (5.51.4807.2300)

Running processes:
C:\WINDOWS\SYSTEM\KERNEL32.DLL
C:\WINDOWS\SYSTEM\MSGSRV32.EXE
C:\WINDOWS\SYSTEM\SPOOL32.EXE
C:\WINDOWS\SYSTEM\MPREXE.EXE
C:\NOVELL\CLIENT32\NWRECMSG.EXE
C:\WINDOWS\SYSTEM\mmtask.tsk
C:\PROGRAM FILES\CA\ETRUST ANTIVIRUS\INOTASK.EXE
C:\PROGRAM FILES\CA\ETRUST ANTIVIRUS\INORT9X.EXE
C:\PROGRAM FILES\CA\ETRUST ANTIVIRUS\INORPC.EXE
C:\WINDOWS\EXPLORER.EXE
C:\WINDOWS\SYSTEM\SYSTRAY.EXE
C:\WINDOWS\STARTER.EXE
C:\PROGRAM FILES\CA\ETRUST ANTIVIRUS\REALMON.EXE
C:\PROGRAM FILES\MICROSOFT HARDWARE\MOUSE\POINT32.EXE
C:\WINDOWS\SYSTEM\DPMW32.EXE
C:\PROGRAM FILES\TRILLIAN\TRILLIAN.EXE
C:\PROGRAM FILES\NETWORKSTREAMING\ENGINEER\VNCVIEWER.EXE
C:\PROGRAM FILES\CRAZY BROWSER\CRAZY BROWSER.EXE
C:\PROGRAM FILES\MICROSOFT OFFICE\OFFICE\OUTLOOK.EXE
C:\PROGRAM FILES\COMMON FILES\SYSTEM\MAPI\1033\95\MAPISP32.EXE
D:\MY DOCUMENTS\DESKTOP\DOWNLOADS\HIJACKTHIS.EXE

R1 - HKCU\Software\Microsoft\Internet Explorer\Main,Window Title = MSIE:IBLP
R1 - HKCU\Software\Microsoft\Windows\CurrentVersion\Internet Settings,ProxyServer = proxy.iblp.org:8080
R1 - HKCU\Software\Microsoft\Windows\CurrentVersion\Internet Settings,ProxyOverride = www.iblp.org;start.iblp.org;secure.iblp.org;iblp.org;mail.iblp.org;store.iblp.org;billgothard.com;ga.iblp.org; www.billgothard.com;www.lifestudygroups.com;lifestudygroups.com;www.characterlink.net;home.characterlink.net;ftp.characterlink.net;search.characterlink.net;search.exploresafe.com;clobntmail01.characterlink.net;mail.characterlink.net;mail-01.characterlink.net;127.0.0.1;*.skipjackic.com;secure.skipjack.com; localhost;<local>
O2 - BHO: (no name) - {AA58ED58-01DD-4d91-8333-CF10577473F7} - c:\program files\google\googletoolbar1.dll
O2 - BHO: (no name) - {53707962-6F74-2D53-2644-206D7942484F} - G:\APPS\IS\SPYBOT~1\SDHELPER.DLL
O3 - Toolbar: &Google - {2318C2B1-4965-11d4-9B18-009027A5CD4F} - c:\program files\google\googletoolbar1.dll
O4 - HKLM\..\Run: [Realtime Monitor] C:\PROGRA~1\CA\ETRUST~1\REALMON.EXE -s
O4 - HKLM\..\RunServices: [InoTask] C:\Program Files\CA\eTrust Antivirus\InoTask.exe
O4 - HKLM\..\RunServices: [InoRT] C:\Program Files\CA\eTrust Antivirus\InoRT9x.exe
O4 - HKLM\..\RunServices: [InoRPC] C:\Program Files\CA\eTrust Antivirus\InoRpc.exe
O4 - Startup: Trillian.lnk = C:\Program Files\Trillian\trillian.exe
O4 - Startup: Shortcut to TransIcon.exe.lnk = C:\Startup\TransIcon.exe
O4 - Startup: NetworkStreaming Engineer Port 443.lnk = C:\Program Files\NetworkStreaming\Engineer\vncviewer.exe
O13 - WWW. Prefix: http://
O16 - DPF: {0E5F0222-96B9-11D3-8997-00104BD12D94} (PCPitstop Utility) - http://www.pcpitstop.com/pcpitstop/PCPitStop.CAB
O16 - DPF: {6BF52A52-394A-11D3-B153-00C04F79FAA6} - http://activex.microsoft.com/activex/controls/mplayer/en/nsmp2inf.cab
O16 - DPF: {2FC9A21E-2069-4E47-8235-36318989DB13} (PPSDKActiveXScanner.MainScreen) - http://www.pestscan.com/scanner/axscanner.cab

As expected you are being sent to a proxy. Get rid of the R1 entries if you want to fix it.

Ok, so the proxy is the issue. The only problem is that the proxy is the company's method of safe-surfing.

I had heard somewhere that checking the box to not use the proxy for local addresses may allow the hosts file to work (see the third R1 entry: override).

I do have this option selected but because it's not working I guess it really doesn't help.