i had similar problem on ubuntu 7.10,
i was not able to ping localhost...

Solution:
i added
iface lo inet loopback
to /etc/network/interfaces file, then
ifdown lo
ifup lo
then ping localhost worked.

my /etc/network/interfaces file:

# This file describes the network interfaces available on your system
# and how to activate them. For more information, see interfaces(5).

# The loopback network interface
auto lo
iface lo inet loopback

# The primary network interface
auto eth0
iface eth0 inet static
address 83.133.127.19
netmask 255.255.255.192
network 83.133.127.0
broadcast 83.133.127.63
gateway 83.133.127.1