first ping localhost and make sure it resolves to 127.0.0.1
go to Start, Run, type in "command", press enter, type "ping localhost", does it return "reply from 127.0.0.1" ? its a good sign if it does.
The other issue is that IE is almost certainly configured to always dial out whenever you're requesting a web page. It doesn't know that the file is local.
go to Tools menu up top in IE, then Internet Options, then Connections, change it from "Always dial my default connection" to either "Dial whenever a network connection is not present" or "Never dial a connection". try them both. You may need to leave it set to "Never dial a connection" and dial out manually when you want to access the internet.