This appears to be common in Internet Explorer (IE) going all the way back to IE8. See the Digest Authentication not Working on IE8 where FireFox and Chrome are Fine
StackOverflow thread for more information. This supports the provided observations with Fiddler and IE.
With that said, let me provide answers to the questions below.
Using the default settings, Fiddler registers itself as the system proxy and all HTTP requests from WinINET go through Fiddler prior to reaching the target Web Server. See more details about this in the Fiddler Proxy
After selecting a session in the Session List
select the Raw tab
in the upper right window pane to see the request raw data.
By default Fiddler won't modify the traffic unless a custom script is used to Modify a Request or Response
Please let me know if you need any additional information. Thank you for using the Fiddler Forums.
Eric R | Technical Support Engineer
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