look under: internet options...connections...lan settings, you can click "use proxy...", and you only have to specify the ip address (of the other computer; pc1, in this case) and the port, which should be 6588 for HTTP & HTTPS. so you shouldn't have to use socks.

and is the pc1 computer behind a proxy as well? (i'm guessing it is, since you say that msn is working). anyways...i'm not sure, but i think it has to have the proxy running as well.