Here is the problem: Vista is connected through wired or wireless connection to a router. IP assigned, no error messages in the connection. Pings are going too Google and updates are downloaded from Microsoft. Probably can go online in messenger or ICQ. But when you start up Firefox or IE, it does not let you go surfing the net.
When you boot Windows into Safe Mode with Network it can go browsing with no problem.
The solution in my particular case was to remove Norton Anti-virus suite. Just when I uninstalled it everything worked fine. Did not even need to reboot.