Is there a way to specify a php file as the 404 handler with the local server?

If depends on what local server you use. If it is IIS or Apache, you can do it. With SRV - no. As it is mentioned in manual and on this forum, SRV local web server is for relatively _simple_ projects. If you need 404 handler, you'd use Apache or IIS. I think NuSphere TechPlatform would fit good for your needs. It comes with Apache, PHP and php debugger. All is configured.