Have spent ages trying to work out why my Windows Vista installation (don't ask :O( ) running under VMWare Fusion point blank refused to connect to the windows update server even through the internet connection worked fine in such things as Internet Explorer.
Turns out that for some reason it doesn't use the proxy settings set within internet explorer settings, as everything else in windows seems to, it uses the settings in the WinHTTP configuration.
Found the info from Microsoft
here.
In my case the commands I used were
C;\Windows\system32>netsh
netsh>winhttp
netsh winhttp>set proxy myproxy:80
I didn't set any exceptions as windows update doesn't need any, and i've not found anything else that uses that connection and it all seems to be working fine for me now.