+1 gadpr08 I have not seen the need to use replacement URIs when making Live System calls so long as the original input request from the consumer contains the URI, body, and headers the live system expects. The error message 'A WebGroup/Virtual Host to handle localhost:1111 has not been defined' makes me wonder if there is something wrong with the base path or soap action header. This assumes the reference to localhost is either part of the real message or masked by the original post.
Try running a test with the VSM in single step ITR mode. Send a request to the service from the client. When the Listen step ends, look at the Properties and launch extended view on the lisa.vse.http.current.transaction. This is the payload that is sent in the Live Invocation step to the server. DevTest does not send the lisa.vse.request to the Live System because one of the DPHs or script logic may have modified the original request by adding, changing or removing arguments, operation names, and header data. The server name and port are in the Live Invocation step to enable substitution. And, as Prema points out, the override URI is there to override the original incoming URI. Compare current transaction to lisa.vse.request. Are they identical? Look at the operation and URI, is it correct from the consumer?
If your implementation were to be using a custom Transport Protocol Handler (TPH), it is possible that the TPH might not create a good current transaction. Since you are using HTTP, I doubt your are using a custom TPH, rather the OOTB HTTP Listen Step.