I was receiving this error when I was trying to add web reference to the webservice which was deployed in our server from inside our Visual Studio.
But putting the same url in the IE, everything seemed to work fine. So there was no issue of IIS not running.
Later I realized that the issue was because of the a software that I was using Ultrasurf (UltraSurf is the flagship software product from UltraReach Internet Corp. for Internet anti-censorship. It enables users inside countries with heavy Internet censorship to visit any public web sites in the world safely and freely.)
But even after closing the UltraSurf the problem persisted. I restarted the system, cleared my system using CCleaner but wasn’t able to solve the problem.
Finally this is something I tried and it worked for me
I went to Tools –Internet Options – Connections (tab) – LAN Settings for IE
In the LAN settings dialog box, checkbox Bypass Proxy Server for local addresses was checked so I unchecked it than clicked OK two times to close both the dialog boxes.
Then again went to Tools –Internet Options–Connections (tab) –LAN Settings
And in the LAN setting dialog box again checked it.
This way I was able to resolve the issue of not being able to add web reference to web services from inside Visual Studio.