rippawallet .. there is less of a chance that the ircd is giving the wrong error than there is that your configuration is wrong somewhere.
You say that you replaced all the localhosts with 127.0.0.1, well i don't doubt you .. but lets consider the fact that, that might not have been the problem. We are dealing with 2 files and 2 applications. All computers generally have more than 1 IP.
1> localhost (127.0.0.1)
2> modem or network card.
That said you are usually dealing with more than 1 IP. for example you are wanting to use 127.0.0.1 and in some configurations Anope could broadcast from your interface IP from your NIC. This would give you an incorrect IP error as you have.
In some cases you have to specificlly designate which IP you are using in the LocalAddress directive in the services.conf.
[Edited on 24-8-2006 by katsklaw]