Does this module support proxy configurations that need usernames and passwords?

Not at the moment.

I'm not sure how to add support for that since the way it currently downloads the files doesn't provide any notification that the proxy needs authentication. So either it has to have some .rc settings or use a more complicated method to download stuff. :(

In the dialog before downloading needed modules, could you add a proxy tab that the user can manually enable? No need to auto detect, just let the user specify whether or not to use it.

(a completely ignorant guess here) Aren't you using an IE interface for downloading, so shouldn't it use IE's proxy configuration already?

That could work, except it'd mean adding tabs...

I'm not really sure... I don't have an authenticating proxy to play with and the documentation is unclear. Supposedly network operations are supposed to fail with 407 errors, but URLDownloadToCacheFile doesn't seem to provide a way to get http error codes. But people have noted that it doesn't work with some proxies, so I assume that it doesn't just do everything automatically.