I had the same error message in catalog (proxy server error) though trying to connect to ArcGIS server 10.2 (I would assume 10.1 and 10.2 are similar enough in regards to connections). With the help of one the IT security guys in my office we found out the firewall on the server (2008 R2) had been turned on. Turned it off, everything is connecting now. This might not solve everyone's connection issues, but it is something to consider. Hope this helps.
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