UPDATE:

AppLife Update Version 1.3 now has a property on the Update Controller that will automatically add default credentials to the auto-detected web proxy.  To include this behavior, set the AddCredentialsToAutoDetectProxy property to true.

By default, the AppLife Update Controller automatically detects the default proxy setting configured through Internet Explorer.  Unfortunately, the default web proxy does not use default credentials, which results in an HTTP 407 error on proxy servers that require authentication.

You can set the "useDefaultCredentials" property of the default web proxy in your app.config file.

<configuration>
  <system.net>
    <defaultProxy useDefaultCredentials="true">
   </system.net>
</configuration>

Alternatively, you can address this in code.

To ensure the default web proxy will send credentials, add the following line before calling UpdateInteractive, CheckForUpdates or DownloadUpdate.

System.Net.WebRequest.DefaultWebProxy.Credentials = 

       System.Net.CredentialCache.DefaultNetworkCredentials;

After this, when the UpdateController requests the default proxy settings, the user credentials will be present.