1. IE7 beta did ignore pac files, the full version doesn't.
2. IE7 is fussy about the filename - the instructions on the website say to enter the following "file:///c:/temp/no-ads.pac" which is incorrectly formed. Even if you type this into the browser URL IE7 will still display the file BUT it will ignore it when defined as the configuration script. The correct string to enter is "file://c:/temp/no-ads.pac" - i.e. only two / before the drive designator.
3. You need to change all explorer windows for the script to take effect.
4. If it's still not working then create a simple file such as this;
function FindProxyForURL(url, host)
{
// block any reference to google
if(RegExp("(google)").test(url))
return "PROXY 127.0.0.1:8080";
// Or else connect directly:
return "DIRECT";
}
Save it as c:\blkgoogle.pac and enter "file://c:/blkgoogle.pac" as the configuration file. If you can still access any google site then the problem is not with configuration files but something else.