The error indicates a cross-domain issue.
How are you accessing your site? Through http://localhost:80 or http://localhost:8080? And where is your proxy hosted? It should match the location and port of your site.
You say you are running the application locally, but your FireBug message implies you are using the OpenLayers Javascript hosted at: http://www.openlayers.org/api/OpenLayers.js
The alternative is to download and host the JavaScript and CSS files yourself from http://openlayers.org/download/
This shouldn't make a difference however.