OS 10.10 not connecting through proxy specified by its Internet name
The alphabetic xxxx-y.zzzz.com is a hostname, not an ip address, and hostnames almost always resolve to an ip address. You should try doing an nslookup in Terminal.app to confirm whether or not you've got the right information in your hosts file.

$ nslookup xxxx-y.zzzz.com 

Non-authoritative answer:
xxxx-y.zzzz.com canonical name = p9p.geo.asbs.yahoodns.net.
Name:    p9p.geo.asbs.yahoodns.net
Address: 98.139.134.174


Then in /etc/hosts confirm you've got:

98.139.134.174   xxxx-y.zzzz.com


something tells me xxxx-y.zzzz.com is not your real hostname, but you get the idea.