Server redirecting to localhost.

I have installed WordPress 2.8 on my host’s server. They setup a sql db for me. IThe install worled oK, but trying to access the blog
http://www.diagesis.com/blog i get redirected to http://localhost/blog/

(in chrome I simply get page cannot be found)

I have set both the wp_options siteurl and home to http://www.diagesis.com/blog (using phpMyAdmin).

If I set wp_options home to http://localhost:11031/blog/ I get the home page loading OK, but all post links point to http://localhost:11031/blog/

I found this on the web, but do know what it means:”Ensure Apache ServerName directive is set to the external IP/Domain name”

thanks.