It is my understanding that if you are not connected to the internet or a network, the UNC path through your machine name won't work. The Path doesn't really exist and you don't have a live address. The loopback adapter gives you a path out and right back in again. The address 127.0.0.1 or LocalHost always refers to the local machine, so with the loopback adapter, it should work. The notes below on loading the Loopback Adapter are from a forum. Google and you will likely get much better information than I can provide.
For Windows 7, the key step is to find the Hardware Wizard:
1.Click the Start menu.
2.Search for ""cmd"".
3.Right-click on ""cmd"" and select ""Run as Administrator""
4.Enter ""hdwwiz.exe""
From that point on it's the same approach as under Vista, i.e.:
1.In the ""Welcome to the Add Hardware Wizard"", click Next.
2.Select ""Install the hardware that I manually select from a list (Advanced)"" and click Next.
3.Scroll down and select ""Network adapters"" and click Next.
4.Select under Manufacturer ""Microsoft"" and then under Network Adapter ""Microsoft Loopback Adapter"" and click Next.