Follow these steps:

1. In IE, go to Tools | Internet Options.
2. On the Connections tab, click the LAN Settings button.
3. In the resulting dialog box, select the following check box in the Proxy Server section: Use a Proxy Server For Your LAN (These Settings Will Not Apply To Dial-up Or VPN Connections).
4. Enter 0.0.0.0 in the Address text box.
5. Enter 80 in the Port text box, and click OK.

Please note that adding a bogus proxy server to your Internet settings won't affect Automatic Windows Update from connecting and updating your operating system.

You can also restrict Internet settings via Group Policy. Follow these steps:

1. On your domain controller, right-click the organizational unit that contains your domain users, and select Properties.
2. On the Group Policy tab, click Edit.
3. Expand User Configuration to set restrictions on a per-user basis.
4. Expand Windows Settings, and expand Internet Explorer Maintenance.
5. Select Connection, and double-click Proxy Settings.
6. Select the Enable Proxy Settings check box, add 0.0.0.0 to the HTTP entry, and click OK.
7. Expand Administrative Templates, and expand Windows Components.
8. Select Internet Explorer, and double-click Disable Changing Proxy Settings.
9. Select Enabled, and click OK.

Remember that Enabled sets a restriction, Disabled prevents a restriction from applying to a group of users (even if you enable it for a broader category of users), and Not Configured doesn't set the restriction.

Before you take any of these steps, download another browser, and test it on your current configuration. I highly recommend Mozilla's Firefox. After you install a new browser, answer Yes when it asks whether to make it your default browser.