The problem i'm experiencing just seems to be Internet Explorer only. Firefox and chrome are un-affected either by the hostname or IP address.
Although I can login using IE6/IE8 with the IP address,
The problem occurs using the hostname.
If I goto the login page a 'sess_xxxx' in the /tmp folder is created. If I attempt to login, or just refresh the login page this seems to set brand new a sess_xxxx everytime.
I have checked the apache logs and the client IP address is always the same regardless if i used the hostname of IP address.
Its not a permission issue.
I have also tried the following which was suggested with no success.
$wgUseSquid = true;
Some suggestion would be greatly appreciated.
[SOLVED: My issue was caused by having an 'underscore' in the hostname example http://my_server - IE looks though it doesn't handle the underscore in the hostname as well as FF or Chrome does.
Hope this helps anyone else using Mediawiki within their local intranet]