Common customer feedback with the 1.1 Framework was support for reading autproxy settings configured in IE. V1.1 did not have support for this and neither had support for specifying a JavaScript location that determines what proxy to use. .Net framework 2.0 now has full support for reading autoproxy settings and also supports provinding autproxy script location via config. System.Net test lead has a very detailed atricle on MSDN expalining how autoproxy works in .NET 2.0 framework. This article is so informative that we point all internal Microsoft groups who have questions on how System.Net handles Auto Webproxy.

Link for the article is http://msdn.microsoft.com/msdnmag/issues/05/08/AutomaticProxyDetection/default.aspx

PS: this article also talks about how to specify autoproxy settings for ASPX pages.

UPDATE: The link was not clickable....Aaagh!!