Hi
In order to connect to SQL SERVER only with 127.0.0.1 you the SQL need to listen in port 1433
Did you set the SQL SERVER to listen in port 1433?
please make sure by running;
start -> run-> cmd
netstat -na |find /I "list"
Do you see this line?
TCP 0.0.0.0:1433 0.0.0.0:0 LISTENING
tell me if not and i will tel you how to configure it.
Good luck!
Guy H