Not certain that is exactly correct(I could be wrong though). The application in question, Internet Explorer, presumably has access. Ohterwise he most likely would not have been able to download SP2. Having said that, since my earlier post I was thinking that is more likely an issue with the settings in Internet explorer. Go to "Tools, Inernet options" from the toolbar. Click to the security tab, then the sites button there. Add your local site. See how that goes. *edit to add...Is there any chance you are using IE7 Beta2? I know there are some issues withh HTTP resolution with it...just a thought.