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#21
The only place where you would normally see a 127.0.0.1 DNS server are on domain controllers which rely on DNS for connecting to Active Directory domains.
The only thing that would explain it would be if your machine was infected with some sort of malware. I'm no security expert but this would seem the only plausible explanation. Unless you have a complex HOSTs file or cached DNS mappings there is no way you could browse the Internet with that DNS address.
Just my opinion,
Josh :)