Thru GPO the Internet is blocked, how about only some Intranet sites

Through the GPO, I use the fake proxy, I tell it to use the proxy for local addresses, and I tell it to bypass the proxy for certain specific local addresses. It will only recognize FQDN’s. If I use just the server name, it fails. For example, http://server.domain.com works. http://server does not.
Without the GPO in force, either name works successfully.
Any thoughts what may be happening?