Proxy client (HTTP) setup questions?

I installed Vidalia (which installs Privoxy 3.0.6) which also it installs TorButton (1.2.1) on Firefox (3.0.11).

I click on TorButton (lower right corner of Firefox window) and it changes to enabled.

I try several URLs and all result in this error:
"
503

This is Privoxy 3.0.6 on localhost (127.0.0.1), port 8118, enabled

Connect failed

Your request for http://yahoo.com/ could not be fulfilled, because the connection to yahoo.com (127.0.0.1) could not be established.

This is often a temporary failure, so you might just try again.
"
I try frequently & often (kinda like voting :-) ) but error remains the same.

I look in Firefox>Tools>add-ons>torbutton>preferences and this is what I see:
- - -
"Use the recommended proxy settings for my version of Firefox" is selected
"Use Privoxy" is checked.

These settings are grayed out under "Use custom proxy settings":

HTTP proxy: 127.0.0.1, port 8118
SSL proxy: 127.0.0.1, port 8118
SOCKS host: 127.0.0.1, port 9050
socks v5
- - -

I have ATT Uverse service and have configured the router to allow "all services" (DMZ mode) for this computer's IP address.

Ideas?

Thanks.
N.