Apparently you can't readily sniff IP packets looped back to localhost in Windows (examples can be found here and here). MicroOLAP (with their PSSDK) and Tamos's CommView both claim to be able to sniff localhost traffic under Windows, however these are commercial products that cost mundo bucks.
Does anyone know a free/opensource tool that can do this? With Linux (and most UNIX-derivatives) it's a simple question of _{tcpdump -i lo} (or _lo0, depending on the system), figures it'll be that much more difficult in Windows...