@acrylian
Actually you don't really lose anything by borking the link manually. I think perhaps I misunderstand what you mean. I was manually deleting the extra folder from the head of the link in the editor and only lost the ability to follow the link to the full image locally. The article still had the generated thumbs in place.
EDIT: I stand corrected. I must have been looking at a cached version. Your statement as posted was exactly right.
@Michel, works like a dream. Thanks for the tips.
One thing to add though, and it was just a silly thing to overlook on my part. Once you make the changes of adding the new virtual host info in xampp and add the new lines to the hosts file you will need to rerun setup unless you like looking at error500.
Works great. No more tweaking the links as I write new articles and I can test identically on both servers.