Firstly I want to assure you that neither of this is required for Netscape 7.2. We already recognize its process name by default. For some strange reason they renamed the process from netscape.exe to netscp.exe in ver. 7.2, and then back to netscape.exe in future versions.
This explains a lot. To be honest, I haven't been using Netscape for a while (That's the reason for the generalization such as apps.) but I was wondering why Netscape 7.2 didn't seem to be authorized by default.
Both options mostly bring the same results. It is up to you if you prefer to edit avast4.ini or change the proxy setup of your app (I'm ignoring for now the fact, that win98/me have no other option).
However it may be helpfull to setup certain application to use proxy directly (localhost : 12080). Usually this also changes the way how the application handles web connections or might force other running software on the system (ZoneAlarm for example) to handle the connection in a different way, it might switch the app from proprietary data format and force it to use HTTP protocol recognized by webshield. Switching to proxy mode also changes the destination TCP port (from 80 to 12080) which might as a by-product solve some other problems too.
By "certain application," do you mean core Win app such as IE? Are you saying that, for example, setting IE's HTTP connection to Web Shield proxy may help system (and other apps which automatically adjust themselves according to the configuration of IE) to recognize Web Shield proxy for HTTP traffic without trouble? I'm not a specialist but I prefer to keep not-in-use apps in darkness since they may well be exploited by malicious attempts. In fact, with my PC, IE is not allowed to go online.
However, directly (for my preference) configuring apps which deal with proprietary data format to use HTTP protocol will do, as you point out.
Ultimately, it seems, as you said, the alternatives seem to largely depend on individual preferences. In any case, thank you again for helping me to understand how it works.