that probably does exactly what you told it to:
will add this rule to the "nat" table
Code:
-A PREROUTING -p tcp -s 192.168.0.0/16
will make this rule happen before it is routed through the box, and will act on all TCP requests that come from 192.168.0.0/16 (which is your internal network)
Code:
--dport 80 -j REDIRECT --to-port 3128
will assure that packets going to port 80 of the destination will redirect to port 3128.
So you are saying that when an internal client (like the computer you type at) tries to go to "hotmail.com" it is redirected to "hotmail.com:3128". Is this what you want?