From Jim Harrison:
Thanx to Jonathon Howey for a bug report in the _2 version to the isaserver.org list and playing guinea pig for my troubleshooting.
Short story: WinHTTP proxy configuration (or auto-proxy behavior) can cause the script to make the wpad request as a CERN proxy request instead of a direct request.
Needless to say, this causes the mechanism to fail.
I've fixed this and stashed it as http://isatools.org/sbs_wpad_3.zip.
I'll post this update into the original WPAD blog entry as well.