Fiddler: Error 502 Proxy Error

Fiddler changes your proxy settings on startup and reverts them back to what they were before you started when Fiddler is closed.

However, that doesn't really explain your problem, because when Fiddler is running it will use your old proxy server as an upstream proxy, and when you shut it down, it reverts the settings back to what they were before.

If you don't want to use Fiddler with IE, uncheck the "Act as system proxy" checkbox inside Tools / Fiddler Options; note that you'll need to manually configure your application or framework (e.g. .NET) to use 127.0.0.1:8888 as a proxy though.

I found the solution at this fiddler2.com page

Why don't I see traffic sent to http://localhost or http://127.0.0.1?

Internet Explorer and the .NET Framework are hardcoded not to send requests for Localhost through any proxies, and as a proxy, Fiddler will not receive such traffic.

The simplest workaround is to use your machine name as the hostname instead of Localhost or 127.0.0.1. So, for instance, rather than hitting http://localhost:8081/mytestpage.aspx, instead visit http://machinename:8081/mytestpage.aspx.