Squid: Local Traffic is Going Through the Proxy

Hi All,

I'm looking for some help please, I'm obviously missing something so obvious so would appreciate a fresh pair of eyes!

I've got a few servers in Azure that are using Squid for Windows (a proxy is baked in to code!) to allow whitelisting...

Some calls from these servers are for http://servername/service/service.wsc for example - the calls are for the hostname, not FQDN. However, Squid is proxying these...it feels like I have endlessly Googled and haven't found a solution...the most basic of setups is that I have the local DNS server in the squid.conf file...when I click http://servername.domain.com/service/service.wsc it works fine...I'm going mad!!!!!!!

Thanks for your time :-)