FYI - this part wouldn't work anyway:
in his host file xxx.xxx.xx.xxx \\networksite,
the hosts file ONLY works with the DNS resolver, the lmhosts file is used for mapping NetBIOS/share names.
It is possible that the workstation in question can't "see" 'networkste'. the LMHOSTS entry would be
xxx.xxx.xx.xxx networksite (no backslashes)
So I guess you could try that...
If i disable the Automatic Configuration Script this user cannot access any internet address.
My guess is that this was 'turned on' for a good reason (LOL - like being able to get on the internet).
And now that I have gone through this a couple of times, it occurs to me that the reason for the auto-configure may be the same as the reaason you are having a problem - there's something unique about how that machine works or is connected to the network. which brings up another question - have you pinged the IP of 'networksite' from the station that doesn't want to work?
(if you can't PING that address successfully - this makes sense)
However, I think the problem is in a browser autocomplete behavior. It might be a setting in IE8's Internet Options Advanced, but I'm betting on a third party toolbar. What's happening is that IE (or a helper app in IE) is trying to complete what appears to be an incomplete URL. (note what's added 'www.' on one end and '.com' on the other). If the user has third party toolbars installed/running try disabling them. I don't think the MS DNS resolver is responsible for this.
One silly question? Why not ask an IT person?