Please read. This may be the root of your problem. It was suggested above and I am going to suggest it again.
I have been banging my head for almost a day and half on the dreaded "local only" network problem.
In my case, I'm running Vista Home Premium edition on an HP PC. Everything has been working fine for many months.
A few days ago, I tried to install Microsoft Security Essentials. I used standard uninstall procedure to strip out the copy of Norton that came with the computer and whose subscription expired a long time ago.
The Security Essentials installation failed. Then I noticed that I hadn't received any MS updates in several months. So I restored to the last restore point, which was dated right around the time when the OS updates stopped.
When I rebooted after going back to the restore point, I could no longer access the Internet.
Running ipconfig gave me an address starting with 169 indicating that my router didn't give me an ip address. I tried KB928233. I tried a hard coded, static IP address. I tried installing another, different network card. I tested my hardwired network
connection with a laptop; it worked.
I noticed something odd in my network stack. There was the Client for Microsoft Networks. There was the normal protocol modules for TCP/IP. But there was also something from Symantec! Sheesh, it looked like Norton didn't get uninstalled completely or
correctly.
Then I ran across this thread, thank goodness!!! I used the Norton removal tool and now everything is fine!!!