I just installed a DNN 5.0.0 site on my local machine (Vista Business 32 Bit, IIS 7.0).  I installed new application folder under Default Website.  I can see the site from other computers http://xxx.xxx.net/DNN but I can't see it on the lcoal machine with http://localhost/DNN.  I get a failed to connect page, even though localhost is defined in my hosts file (127.0.0.1       localhost, ::1             localhost). 

For a while Localhost was working fine, but I was unable to see the site from any other computers on my network (simple peer to peer).  I tried so many things I couldn't begin to say what I changed in IIS, but now I can see all sites from any other computer but not via localhost.

Does anyone have any ideas of what could cause this?

Robert gave some great advice above.  I thought I'd add that another reasonable step would be to open up a command window on your local computer and attempt to "telnet localhost 80".  if you get a blank window, then the issue is likely with IIS, policy, or a firewall/security issue.  If you get a blank screen (indicating successful connection), then the issue is with DotNetNuke and you will need to investigate your PortalAliases in more detail.

Brandon