I confirm this bug on all my machines using apt-cacher 1.5.3 on a Debian Etch 
server and trying to upgrade the client from Feisty to Gutsy.
As soon as I remove the line "Acquire::http::Proxy...." from /etc/apt/apt.conf 
, the upgrade starts.

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When apt-cacher is used, Update-Manger fails (not #78673 duplicate)
https://bugs.launchpad.net/bugs/113658
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