Windows TCP/IP stack does not implement a network loopback interface, as found in other TCP/IP stack like lo* interfaces in BSD systems.
Thus, it is not possible to sniff network traffic using the typical Windows packet capture driver, WinPcap .
However, TDIMon  can be used to see loopback traffic (but does not support network traffic logging):
NT Kernel Resources's Local Host Monitor  is similar to Sysinternals's TDIMon but also supports data sent to the TCP/IP driver using the TDI interface, including loopback network data.
Another method to capture loopback network data is to use a Winsock LSP (Layered Service Provider). The Ports Traffic Analyzer  is an example of such sniffer.
The Microsoft Loopback Adapter can be installed on Windows systems, to run network applications when no physical adapter is present or active on the system . This adapter is not the equivalent of a network loopback interface and IPv4 address 127.0.0.1 can not be assigned to it. Also, it is not possible to sniff network traffic on it, at least with WinPcap.