The proxy settings on this computer are not configured correctly for Web discovery.
This error appears in the Add Web Reference dialog box if you are developing on a machine that is behind a firewall and a proxy server has not been explicitly specified for Internet Explorer connections. You need to explicitly specify the address and port of the proxy server on your network in order to make services outside the firewall available to the Web Browser in the Add Web Reference dialog box. The Auto-detect proxy option for Internet Explorer connections is ignored by .NET Framework. You may need to ask your network administrator for this proxy information.
For more information on "Automatic Discovery for Firewall and Web Proxy Clients" see: http://www.microsoft.com/technet/prodtechnol/isa/2004/plan/automaticdiscovery.mspx
To specify a proxy server for Internet Explorer
From the Tools menu, choose Options.
In the Options dialog box, choose Environment and then choose Web Browser.
Click Internet Explorer Options.
On the Connections tab, click LAN Settings.
Unselect Automatically detect settings.
In the Proxy server area, select Use a proxy server for your LAN (These settings will not apply to dial-up or VPN connections)..
Specify the address and port number that matches your network.
Click OK, click OK, and then click OK again.
From the File menu, choose Exit and then re-open Visual Studio.