I'm running 2.2 (windows authentication, proxy only) and recently ran into an issue with a Java applet not loading because of an authentication issue. After reading your post I searched out how to change the proxy settings for Java.
http://www.java.com/en/download/help/proxy_setup.xmlStart the Java Plug-in Control Panel by following these instructions:
1.Click the Start menu
2.Select Settings
3.Select Control Panel
4.Double click the Java icon.
5.Click on the Network Settings button.
6.Select the Use Browser Settings checkbox.
7.Click the OK button to save your changes.
8.Close all browser windows. Restart the browser and try to load the applet.
9.If the applet still does not load and you see the same connection error, try to configure your web browser's proxy settings.
In my case fortunately, it wasn't apparently grabbing the browser settings, even though it was configured that way. Once I manually entered my proxy address and port, it worked!