I've finally got my local mirror working. 
It seems that setting 'mirror/country' to country code overrides 
'mirror/http/hostname'. 
Setting it to 'manual' fixed it.  There is my set of options which is working:

d-i mirror/country string manual
d-i mirror/http/hostname string local.mirror.fqdn
d-i mirror/http/directory string /ubuntu-11.04-server-i386
d-i mirror/http/proxy string
d-i apt-setup/security_host string  local.mirror.fqdn

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https://bugs.launchpad.net/bugs/775670

Title:
  Using local mirror fails, preseed always hits us.archive.ubuntu.com

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