Lucky you!

I did some experiments (plus did some more reading at MS). My "error" is that I develop (some say "dabble") and therefore have .NET-tools and some SDK's installed. That seem to be another indredent in the mix leading to the problems. Though I've tracked a few of the others that reported the same error, and at least 2 just had a vanilla XP + MSIE7 and a bunch of games, but no dev.tools - still they got the error.

Anyhow, this is open source so I better head for some dev. _ Think I create a fix - and if it does not blow anything up, I'll post it.

Been there, done that.

Problem is that this specific connection-error (as the official MS-forum clearly states) is something that keeps cropping up and that it has been a problem for more than a year. My intention was not to point fingers at your flow-chart but to give a hint:
That MSIE7 on XP is flawed and that every time it has been updated since the initial release, it has whacked several app's (PlaneShift being one), and last update was no exeption.

Even I've eradicated MSIEx on my XP, the (MS)updater insist on forcing MSIE-components down my throat - thus giving problems with PS.
Tonight I got too tired of that battle and tried to install a fake dll, with mixed results: The PS-updater don't eat 100% cpu, but update still cannot connect, and MS now insist that PS is an unwanted program and suggest to blow it away.