I manually set Fiddler as the system proxy. When I tried to use Fiddler as a proxy it looped and made repeated connections to itself opening hundreds of connections. I realized what happened is since I have the Fiddler gateway set to use the system proxy and I set the system proxy manually (rather than use 'Capture Traffic' in Fiddler) it didn't realize it was connecting to itself.
This may be more of a corner case but I think if use gateway is enabled then you could check that against Fiddler and see if it's the same thing, and if it is then ignore it or warn the user.
It was set to localhost 8888. I'm using Fiddler v4.6.20173.38786 in Windows 7. Bypass urls that start with <-loopback>;
I've uploaded an example session archive of one request looping on itself. The first second 40 requests are made and then 1 each second until I stopped it.
== FLAGS ==================
BitFlags: [LoadedFromSAZ, SentToGateway] 0xa00
UI-COMMENTS: [#1]
X-CLIENTIP: 127.0.0.1
X-CLIENTPORT: 49997
X-EGRESSPORT: 49998
X-HOSTIP: 127.0.0.1
X-PROCESSINFO: svchost:1320
== FLAGS ==================
BitFlags: [LoadedFromSAZ, SentToGateway] 0xa00
UI-COMMENTS: [#2]
X-CLIENTIP: 127.0.0.1
X-CLIENTPORT: 49998
X-EGRESSPORT: 49999
X-HOSTIP: 127.0.0.1
X-PROCESSINFO: fiddler:1400
== FLAGS ==================
BitFlags: [LoadedFromSAZ, SentToGateway] 0xa00
UI-COMMENTS: [#3]
X-CLIENTIP: 127.0.0.1
X-CLIENTPORT: 49999
X-EGRESSPORT: 50000
X-HOSTIP: 127.0.0.1
X-PROCESSINFO: fiddler:1400
and so on
Did you record your settings when this happened? Fiddler does, typically, reject such loops, unless it fails to recognize that the settings point to itself (e.g. your system is set to machinename:8888 and Fiddler is set to use 127.0.0.1:8888).