I'm looking for a open source .Net HTTP proxy library. Basically I want to develop something like Fiddler (so much lighter with less features).
There is URLRewriter.NET, a free open-source component for IIS/ASP.NET.
As the name suggests, it's an URL rewriting component, but it has also proxying capabilities. With a simple line like this in the configuration file
RewriteRule ^(.*) http://www.testsiteXY.com$1 [P]
you could easily use it as proxy.
I've used the Mentalis Proxy at work: http://www.mentalis.org/soft/projects/proxy/
It's not been touched for a while so there may be a few bugs.
Licence details are here: http://www.mentalis.org/site/license.qpx
Mentalis doesn't handle non-ASCII very well. The core proxy engine of Fiddler is called "FiddlerCore." It's not available publicly at this point, but may be in the future. You might consider requesting over in the Fiddler discussion group.
Update: FiddlerCore is now available: http://www.fiddler2.com/fiddler/Core/