First, try resetting the HTTP proxy through an elevated command prompt with the following command:
netsh winhttp show proxy
If you are still receiving this error, be sure you follow this KB:
http://support.microsoft.com/kb/836941
If this does not resolve the problem, try resetting Windows Update Components with the following Microsoft Fix It:
http://support.microsoft.com/kb/971058
If this still does not work, be sure that WSUS GPO & registry settings are NOT in place!
First check GPO:
Administrative Templates->Windows Components->Windows Update, under the setting "Configure automatic updates." If this is already set to "Not configured," then check registry settings under:
HKEY_LOCAL_MACHINE\Software\Policies\Microsoft\Windows\WindowsUpdate
For any WSUS keys. Deleting the WSUS keys I found in the registry remediated my issue.