This isn't the case for me, since I can quit Phex, and go back in to it and it makes connections instantly. Therefore no blocking is taking place.

Actually I've also noticed that when I first run Phex, in the middle of the "Gnutella Net" screen it says: My Address 127.0.0.1:3617, then Phex tries to connect to about 5 other hosts, they all sit there "connecting" until My Address changes to my "Internet IP" then instantly the 5 hosts change to "Outgoing" and connections are made. After several hours, all of a sudden My Address changes back to 127.0.0.1:3617 and no more connections or downloads can happen afterwards, and Phex can no longer connect to more hosts so they slower drop off. I'm trying to find a relation between this weird IP address thing and the problem with 1000's of Phex processes.

I'm currently at 1011 processes and my IP address in Phex just changed to 127.0.0.1 while I wrote this. Could it be Phex's way of limiting the processes? Once too many are spawned it changes the IP address in an attempt to bring the processes down? Though I've never had it recover after about 500 processes. My Phex uptime is only 20mins.