I guess I should have been more specific. I am using the host file to blacklist these domains. I did try rebooting and confirmed the entries are in the host file.

I think its a limitation in how the proxy works. Without the proxy server set, both IE and Firefox work how it should with the host file, can't connect to these sites (as intended). However, with the proxy server set on IE and Firefox, it does not check the host file and loads these sites as normal.

Can anyway else confirm this? Would there be a workaround for this besides adding the entries to the proxy? Yes you could add them to the proxy...but not if you don't have administration on the proxy server.