I'll try this out Gregor but I did notice something.

The client which I'm using as a server type thing (it's not connecting to anyone else), says My Address: 127.0.0.1

Now I notice that connecting with another client to this server works fine. Then suddenly the My Address: changes to a real correct IP. Interesting.

Now I noticed that when a download was happening, it listed the host as 127.0.0.1. This didn't seem right.

Do you think it likely that the process would be confused if Phex didn't know what IP address it was?

Oh and there's no phex.cfg, I created one with those lines but still no log file. This is win32.