I have created a new GPO called "Internet Explorer" (default permissions on the policy)
The GPO is applied at the root of the domain, so it covers all OU's within the domain.
All users are located in a "Users" OU and all workstations in a "Computers" OU.
Both OU's do NOT have inheritance blocked.
I've checked the "proxy server" settings under the "Connections" tab in "Internet Options"
They have not been applied.
I've ran RSOP.MSC and rsop confirms the settings as being applied.
I've check to see if the settings are being applied on XP and Windows 7 machines.
I've also tried with different user accounts (1 being a domain admin and another being a standard user)
I'm out of ideas, this is fairly urgent as currently my users have full access to the internet.