Hi, I have a similar problem and reported it to ubuntuforums installation and upgrade section but still could not find a workaround.
I am trying to upgarde gutsy to hardy behind a proxy server that requires authentication username and password. I can update the packages using the global proxy setting of gnome and even can wget in the terminal with that setting. Even the synaptic is working fine with its own proxy configuration. But when attempted the upgarde process it says Failed to fetch some packages -- proxy authorization problem.