I found the explanation (and when I recalled that Fiddler involved, I also recalled what the hack did)
It isn't related to IIS; It's a workaround for Internet Explorer to force the browser to not bypass a proxy. Since Fiddler is implemented as a proxy, http://localhost:8080
will completely bypass it but http://localhost.:8080
will not bypass the proxy, allowing monitoring tools to capture traffic.
Internet Explorer (7 and 8, I think) is written to bypass proxy servers for resolving "localhost" resources. Appending a trailing dot to "localhost" provides a valid DNS name that does not match the rules that "Old IE" uses for this bypass logic. Internally, the trailing dot gets trimmed from name resolution and you force IE to not execute its internal logic that bypasses the proxy server.
From what I understand, this was changed in IE9.