The most probable cause is an error in your browser configuration.
You must tell it to use the proxy using a LAN connection and provide the server name or IP address and the port#. Typically this is "http://myserver" port"80" (or 123.456.789.123 port 80).
It's a good idea to install the Winsock Proxy client from your server but that shouldn't have an impact on your browser.
If you are using the default configuration for Proxy, the security features (filters, permissions, etc.)are disabled. If not, disable them to test your connection so you are sure that's not the issue.
All this is based on the assumption that you can "see" the PDC on your network, of course.
One last point. Microsoft says you can't ping an internet site through the proxy.
http://support.microsoft.com/Support/proxy/faq/apps/102.asp