Problems with 127.0.0.1, Please Help

Hi All, Relative Newbie here.
Now i'm not sure if i've got a bug or Not, but can anyone tell me anything about 127.0.0.1, because since i've just downloaded some Updates from Micros***, my ISP is re routing me through a Proxy Server with this Address, through port 5400.
Now, i've just spent 2 days rehashing my Machine to try to solve this problem, as it has slowed down my connection to a crawl, very bad when you do a lot on Ebay ( I can hear the collective Groan from here ).
OK, so I use Spybot, plus a couple of other Spyware programs, but Spybot is the only one that has found anything, ( Both Before and after Rehash ) before it was Coolwwwsearch variant, associated with Slawsearch, which nothing got rid of, reason for rehash, and after it found the Agobot-KU Worm, with a associated file called System32.exe.
So, I thought i'd have a look at google and see what I could come up with for 127.0.0.1, and it I came up with this

" A computer on the network is identified by what is known as an IP address, which consists of four numbers separated by dots, such as 127.0.0.1. However, there is one address that cannot be used by any computer in the world, and that address is 127.0.0.1. The reason is that this address has been reserved as what is known as the loopback address. A loopback address is an address that tells the computer not to test its connections to another computer, but to test its own basic network setup"

Now, I can understand what this means, BUT i'm really not sure if this is something that my ISP has done, Microsoft has done, or if i'm getting Hacked senseless.
All comments are most Gratefully received.
Thanks for Listening

 

Hi Thanks for the Reply, I havn't done that yet, but I did run Ad-Aware last night and It found 2 Registry changes tha it hadn't done before, that it said "restricted access to internet settings", so I removed them, and lo and behold, my settings went back to normal, but as soon as I logged on, everything went back to Proxy Hell, so i'm going to check with my ISP, and report back as to what's going on, as I don't want anyone else getting this, if it is a Hijack.
Many Thanks Again
Rocco1504