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Can you show how did you add proxy pac to IE ?
Is your client pointing directly to the MWG file server port or to do have a rule to handle the PAC file and redirect to internal next hop?
Also, based on your PAC file, a DNS resolution will be done locally on the client (to determine the result of the PAC file execution).
So make sure DNS is working OK.
Keep in mind that dnsDomainIs is explicit.
Is your issue with matching in the first or second ruleset? I am assuming here the issue is the rule: isInNet(dnsResolve(host), "10.x.x.x", "255.255.0.0"))
Chrome is usually less forgiving than IE in terms of the PAC file. Are all sites broken or only those specific to the above rule? How is IE configured on the connection settings screen?