Thanks again, I have confirmed this. I have also tried the site on port 8080 to avoid any potential conflict with any other application/service on the machine. I also wrote a WCF application that exposes a WCF service on port 8090 (NOT hosted in IIS) that is accessible via localhost when run on a machine in my office but NOT when run on my local Win 7 machine.
Ping/telnet/tracert all resolve localhost, 127.0.0.01 etc. as expected within 1 hop.