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Confirm if "Bypass proxy server for local addresses" is checked out under Internet Explorer>Tools>Internet Options>Connections>LAN Settings button > Proxy Server section. If not check it, restart the browser and check if you are able to use client after this change.
Unfortunately this does not work. i tried putting proxy options. (enable and disable and ports etc.) did not help.
I found a good note- http://www.siebeloracle.com/accessing-oracle-siebel-8-1-using-windows-7-ie8-works-on-32-bit-os/
and it worked..