Limitation on Proxy Exceptions in Windows 2003 Group Policy Object Editor

From Microsoft KB302224

Description
When you use the Group Policy Object Editor, and you configure the proxy settings, the text box that contains the proxy exception list may be truncated if more than 255 characters are used. Also, if you previously clicked to select the Do not use proxy server for local check box, the check box may be cleared. Because of a limitation in the way INS files are read, the proxy exception list is limited to 255 characters. The Do not use proxy server for local check box appends the text ";" to the end of the list. This text is eight characters long, and the 255 characters must include these characters. Therefore, when you click to select the Do not use proxy server for local check box, the total length of the exception list is actually 247 characters.

Resolution
Apply Windows Server 2003 Service Pack 2. After you install this hotfix, the proxy exception list is limited to 1024 characters.