We found this answer for a problem we had updating Windows XP SP2 PCs
regardless of user rights. Specifically, we tried updating the Windows
XP PCs from the Microsoft Updated site and found that the updates failed
eventhough we had the appropriate BM Proxy settings in IE. (No problems
in Windows 2000 PCs.)

The long and short of it required that we login as administrator, run
the "proxycfg -u" command at a DOS prompt. Once this is done, the
updates worked.

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C:\>proxycfg -?
Microsoft (R) WinHTTP Default Proxy Configuration Tool
Copyright (c) Microsoft Corporation. All rights reserved.


proxycfg -? : to view help information

proxycfg : to view current WinHTTP proxy settings

proxycfg [-d] [-p <server-name> [<bypass-list>]]

-d : set direct access
-p : set proxy server(s), and optional bypass list

proxycfg -u : import proxy settings from current user's
Microsoft Internet Explorer manual settings (in HKCU)