The JDK/VM tries to load net.dll, which then loads wsock32.dll as its socket services. The winsocket program might have done something with the system socket DLLs and might have broken the JDK net.dll, which could explain the UnsatisfiedLinkError.
When JDK creates a ServerSocket or Socket object, it tries to resolve the local host name by calling gethostbyaddr(), which eventually queries the DNS on the Win95/NT, if the user has a DNS entry configured for the TCP/IP. (This normally results in a "Dialup dialog" coming up.)
For the second problem: To avoid the DNS query, add an entry to your %WinDir%\HOSTS file. Refer to the Java WorkShop release notes for more details.