Just to clarify some things here:

Windows XP Pro
Delphi 6

The problem has nothing to do with network transports. It is the
localhost connection that is broken. This connection uses inter-
process communication to talk to a host located on the same machine as
the application.

Again, it's not a big deal for me if it's broken because I can use the
TCP/IP loopback address (127.0.0.1). It's just annoying that I can't
figure out whjy it broke and how to fix it!