UPDATE 1:
According to this tutorial on Using PayPal\'s Instant Payment Notification with PHP, PayPal cannot access locally hosted websites unless c
Well, it most works, but also, you can setup a temporary local dns entry. All you have to do is:
So when your browser query for the website will be fetched from your 127.0.0.1, somethings your need to flush dns( /etc/init.d/nscd restart).
and that is it all, but remember to remove the entry when you are ready for production.