Why my hosts file doesn't work in Windows?

Once again Windows know exactly how to surprise me.

I’ve added entries to the Windows/System32/drivers/etc/hosts on my remote Windows 2008 Server. The entry was resolved properly as it could be tested from the command line (ping, telnet, etc.) but in IE and FF browsers it didn’t work.

DNS flushing, clearing browsers data or restart didn’t help a bit. It occurs that the IE had a proxy settings and apparently (when any proxy is set) it refuses to take hosts file under consideration. It affects not only IE but also the FF.

The solution was to remove the proxy setup in IE and from this moment the hosts file entries were resolved properly.