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We have discovered that the handling of the <local> macro in urllib.proxy_bypass is broken. According to the Microsoft documentation for this macro, what should be checked is simply that the host name specified does not contain a period. Since urllib gets its proxy information directly from the Windows registry it would make sense to use the same definitions that Microsoft does. Attached is a patch that does this.
Here is a link to the documentation that specifies this:
http://msdn2.microsoft.com/en-gb/library/aa384098.aspx
Note the section discussing the proxy bypass parameter.
In addition, this patch adds code to strip the entries in the proxy bypass settings of any leading and trailing spaces. Internet Explorer supports this although it does not appear to be officially documented.