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Just had dinner with one of my buddies in TFS and they pointed out a great post by Ed that didn’t make to the team blog:
If you are installing a TFS Proxy server on a machine that is configured to automatically receive the proxy settings from your network (this is different than DHCP) you may have connectivity issues when running the TFS Proxy Service as a machine account, such as NETWORK Service. For servers it is generally recommended that they use pre-configured IP and network Proxy settings (if needed).
You can verify this setting on your machine by opening up Internet Explorer / Tools / Internet Options / Connections / LAN Settings.
The problem is that these settings are cached at a user level the first time Internet Explorer (or default browser) is run. If you are using a machine account such as NETWORK Service, it will never run the browser, and get these proxy settings.
In this situation you will either need to: