Why can't I connect to SQLCE/IIS web service when there is no network connection on the desktop?

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I have a Windows CE 5 device that I connect through USB to a Desktop. On the desktop is the SQLCE replication(?) web service/dll (Merge Replication Agent). It's installed properly as far as I know-- the test on the desktop to localhost/sqlce/sqlcesa35.dll works as it should. I plug in the mobile device and try to connect to the web service, but it only connects when the desktop has a network connection-- that is, if a LAN cable is plugged in.

Why is this so and how can I make it connect even without a network on the desktop?

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ErikEJ On BEST ANSWER

Install the Microsoft loopback adapter https://support.microsoft.com/kb/2777200?wa=wsignin1.0