Query configuring IE to use a proxy server

"It depends on several factors:

DNS lookups will probably still travel across the LAN, and could be watched/logged.
If you are connecting to a proxy over HTTP (you probably are) - that connection will be unencrypted and easily sniffed for the sufficiently motivated sysadmin.
The IP that the web site admin will see most likely will be whatever the address is of the outside proxy server (in theory, your proxy could be chained to another, etc.)."