Most administrators are not concerned with traffic on the local loopback interface. This is because such traffic is often necessary for proper operation of the local system. It is also rather difficult to analyze in order to determine what is necessary and what may be safely blocked without affecting normal operation. The major reason to firewall loopback traffic is that if rogue software is installed on the system by a virus or worm, then that software has more avenues to further attack the local system over the unprotected loopback interface. It may allow a minor compromise to exploit the opening to become a major system takeover.
The major trade-off here is whether the likelihood of compromise and the resulting potential for damage justify the additional time and effort required to analyze and create a proper firewall for the loopback interface.
