It would be extremely unlikely that a "broken" DNS Proxy would be the problem. Why? Because a broken DNS proxy would cause all kinds of DNS failures and you wouldn't even get where this error is generated since you wouldn't be talking to the server that had the update and generated the error.220.127.116.11 is a public DNS (nothing to see with any ISP)
Your ISP could be forcing you through a broken proxy, therefore no chance to get updates from WU.
When i gave this "possible" solution to some people, some of them told me that Microsoft, itself gave this solution as a possible one.
Now, it is up to you just to try it or use a DNS from your ISP which is working fine. (you may leave blank the secondary)
Me and a guy from MS Support has tried to search for the problem. According to MS this problem only happens to machines with antivirus software. The problem seems to be permissions-related and so far the only solution has been to reinstall the OS or use a recovery disc.