Need some assistance in troubleshooting a satellite server problem I'm having...

First the particulars:

ZCM 10.1.2 primary server running on SLES 10 SP1
ZCM 10.1.2 satellite server running on Windows XP SP2
ZCM 10.1.2 managed workstation running on Windows XP SP2
ZCM 10 agent is using squid proxy for its communication (policy states that all http traffic must go through a proxy)

The primary server and the satellite server are in two different offices across WAN links. The managed workstation is in the same office as the satellite server. When I download the bundle for OpenOffice the bundle takes forever to download. I checked the logs on the managed workstation and sure enough the content is downloading from the primary server. I do have the closest server rules setup so that the workstation would download content from the satellite but that is not happening. I also noticed in the squid access log that whenever the managed workstation tries to communicate with the satellite there is a 505 error. I opened a browser on the workstation and typed in the url from the squid proxy and got an error message 'HTTP version not supported'

I was wondering if anyone else has had this problem or if someone could help steer me in another direction of troubleshooting I would appreciate it.