As was touched on in the comments, use Windows Server 2003+'s group policy management to administer a phony proxy policy. In the policy, set the proxy address and port to something nonexistent, then tell it to bypass the proxy for certain addresses (your intranet). Also, as mentioned below, remove the connections tab in IE settings, or just disable the proxy settings which will cause them to be grayed out. Set the permissions on the policy so that this user is the only one who has access to apply the policy. We have a Server 2003 set up and have two usernames locked out this way. Whatever PC they go to they are blocked.
This is a technical challenge for sure, but you have a personnel problem on your hands. They need to understand that in today's economy there are a lot of other people who would like to have a job. If there is not enough real work for this person, then the company should let them go and help the bottom line. I think it is important to have this discussion with this person with HR, management and staff involved to understand the severity of the issue. In the meantime, you might be able to do a few things:
1. Does the person need access to any resources outside of the local LAN and is the intranet on the local LAN? If they do not access any resources outside of the LAN and the intranet is local, then remove the default gateway from their computer. You may need to modify the hosts file on the computer to get name resolution for the intranet, but any requests for services outside of the local network will fail.
2. If the situation is not covered by item 1, then things do get sticky. You may need additional technology to accomplish what you are saying such as a proxy server with authenticated access control. You have to ask yourself is it really worth this effort & cost for one employee. That goes back to the discussion you need to have with this individual that I suggested at the beginning of this post.
Further... Is this person that important. Warn them an fire them. Replace with someone that respects you as an employer.