This is a very strange problem.
Could you send us the hosts file located in ~\Windows\System32\drivers\etc?
For your second question - There should be no problem to do test locally just have this in mind: when adding links to a content(Generic_Content etc...), make sure that the links do not contain http://localhost. Otherwise they might be broken after publishing to the live environment.
All the best,
the Telerik team
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