Dreamweaver 8 testing server setup

Ignore the above. This is how the question should look...

I'm stumped when trying to set up a testing server for a simple web site.

I want to use PHP to run a calendar of events otherwise everything would be strict html.

My local sever address is C:\Apache2.2\htdocs\MyDomain\ which is what I entered in the testing server field. This is also the physical location of my Dreamweaver files.

For my image folder I have C:\Apache2.2\htdocs\MyDomain\ images\

For local URL, I put http://localhost/MyDomain/

I get a warning dialogue saying that this is not the same URL as the local server. But I don't know what else to use.

When I test the page, everything is fine except the images. The CSS and JavaScript load alright.
Checking the code in the browser, the images are being called from localhost/images.

I have played with changing the relative path setting from Relative to Site Root and back without any effect.

What am I overlooking?

[Vote for the ability to edit comments in EE after posting today!]

Have you tried using the same value in the testing and local server address as in replace C:\Apache2.2\htdocs\MyDomain\ with  http://localhost/MyDomain/ since they are in the same place?