IIS 7 Host Headers Not Working

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I'm having a problem binding my websites on my local windows 7 machine. When I create a new website I specify the local machine path, then I edit the bindings to add a host header of site1.com. When I enter "http://site1.com" in the browser address bar, it responds with:

The connection has timed out
The server at site1.com is taking too long to respond.

I theorize that it has something to do with my DNS trying to retrieve the ip address for site1.com on the net as opposed to my local implementation. If I leave the host header blank, bind to port 8080, and enter "http://localhost:8080" in the address bar it works fine though. Any suggestions?

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seanbreeden On BEST ANSWER

Be sure you modify c:\windows\system32\drivers\etc\hosts to include your site1.com domain.

   127.0.0.1     site1.com