Itunes could not contact iPod update server ...not connected to internet

Please help. I have: Win XP Pro, SP2; itunes 7.0.1.8. iPod ver. 1.1 5G Video iPod. Am getting error: "itunes could not contact the iPod update server because you are not connected to the Internet."
But I am connected to the internet, and can download podcasts and access itunes store. But I cannot download ipod ver. 1.2, and thus I assume this is the reason that I am getting incomplete syncs on video podcasts.
I have followed the Apple site's recommendation to ensure the LAN settings button is set to "Automatically Detect Settings" but I still get the error.
I have uninstalled itunes and reinstalled it again; still getting error. I have disabled my firewall; still no luck.
I welcome any help, please!! Thanks.
PC   Windows XP Pro  
PC   Windows XP Pro  

replying to dave2007
I have been trying for 3 hours to make this work -- I've checked the box and tried; unchecked the box; rechecked, rebooted and tried ... you get the picture.
hmmmm.
by any chance, are you using a proxy? in the context of Store connections, i've seen a problem with a proxy cause a connection issue, even though the network diagnostics looked perfectly clean.
working on that theory, if you are using a proxy perhaps try the techniques from this document:
iTunes for Windows can't access the Internet if proxy settings are incorrect
or perhaps just try to see if the connection to the update server goes through if you if you try this without the proxy.

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