I have never seen that error joining IRC. 127.0.0.1 is Local Host. That is not a valid External IP address. I am doing some searching around to see if anyone else has had that issue as I have never in the years I have ran IRC had that. Will get back to you if I find anything.
What IRC Client is this? MIrc? Is this on a Mac or PC?
MIRC is a Windows IRC client.
http://www.tech-faq.com/127.0.0.1.shtml
Edit: This is straight from FreeNode on the subject.
Why is my client trying to connect to 127.0.0.1 when I try to connect to your network? You've tried to connect to freenode during a massive clonebot (or some other denial-of-service) attack. IRC suffers from the lack of a reputation-based system for filtering out malicious clients. For this and other reasons, we must sometimes shut off new connects or shut down servers for (hopefully brief) periods of time. We apologize for the inconvenience and want you to know that we are slowly working on the problem. We hope you'll consider donating to PDPC, the not-for-profit entity which runs freenode, to help us acquire the resources to advance this and other projects.
Why does my client get "connection rejected" when I try to connect to your network? As in the case above, you've tried to connect to freenode during a large denial attack, and our listening ports are closed. Please try a different server or check back in a few minutes if you can't get in.