Comment 38 for bug 13661

Yep, distribution upgrades will not work when you have to use a proxy.
I have http_proxy and ftp_proxy set to "http://web-proxy:8080/", Synaptic, Settings->Network->Proxy set to the same and also /etc/apt/apt.conf has
Acquire::http::proxy "http://web-proxy:8080/";
Still same behavior as #34.
I also tried the following, waited and pressed Ctrl+C:

$ sudo do-release-upgrade -m desktop
Checking for a new ubuntu release
^CTraceback (most recent call last):
  File "/usr/bin/do-release-upgrade", line 61, in <module>
    fetcher.run()
  File "/usr/lib/python2.6/dist-packages/UpdateManager/Core/DistUpgradeFetcherCore.py", line 235, in run
    if not self.fetchDistUpgrader():
  File "/usr/lib/python2.6/dist-packages/UpdateManager/Core/DistUpgradeFetcherCore.py", line 203, in fetchDistUpgrader
    uri = self._expandUri(self.new_dist.upgradeToolSig)
  File "/usr/lib/python2.6/dist-packages/UpdateManager/Core/DistUpgradeFetcherCore.py", line 178, in _expandUri
    new_uri = self.mirror_from_sources_list(uri, self.DEFAULT_MIRROR)
  File "/usr/lib/python2.6/dist-packages/UpdateManager/Core/DistUpgradeFetcherCore.py", line 164, in mirror_from_sources_list
    if url_downloadable(mirror_uri, self._debug):
  File "/usr/lib/python2.6/dist-packages/UpdateManager/Core/utils.py", line 105, in url_downloadable
    c.request("HEAD", path)
  File "/usr/lib/python2.6/httplib.py", line 898, in request
    self._send_request(method, url, body, headers)
  File "/usr/lib/python2.6/httplib.py", line 935, in _send_request
    self.endheaders()
  File "/usr/lib/python2.6/httplib.py", line 892, in endheaders
    self._send_output()
  File "/usr/lib/python2.6/httplib.py", line 764, in _send_output
    self.send(msg)
  File "/usr/lib/python2.6/httplib.py", line 723, in send
    self.connect()
  File "/usr/lib/python2.6/httplib.py", line 704, in connect
    self.timeout)
  File "/usr/lib/python2.6/socket.py", line 507, in create_connection
    sock.connect(sa)
  File "<string>", line 1, in connect
KeyboardInterrupt

$ lsb_release -a
No LSB modules are available.
Distributor ID: Ubuntu
Description: Ubuntu 9.10
Release: 9.10
Codename: karmic
$ uname -a
Linux ubuntu 2.6.31-21-generic #59-Ubuntu SMP Wed Mar 24 07:28:56 UTC 2010 i686 GNU/Linux