Setting the proxy settings for a web application in MOSS is very straightforward, as an existing <defaultProxy> element exists in a default web.config file. Simply browse for the XML tag and make your edits as needed.
Its a bit different with Windows SharePoint Services (WSS). The default web.config file does not have an entry for <defaultProxy> and adding it in the wrong place can get you an unwelcome YSOD. The trick is to add the proxy block after the </system.web> closing element, like this:
<proxy autoDetect=”false” />
Save the file and your web application will restart, picking up your new proxy settings.