Internet Explorer has the ability to "reset" it's settings back to factory default. It sounds as if you've been infected, and something has disabled Internet Explorer's functionality.
Do you normally use a proxy server ? If not, then the post above is probably correct, your IE has somehow been set to try to use a proxy.
If you can't get IE "reset", you might restore internet functionality by downloading and installing Firefox from a "standalone" package. Download the file to a flashdrive, and manually install it on the broken computer.