OK, I re-ran the UM installer on the server and that let me configure the proxy settings, but downloading of updates still failed. I had to set the service account for UM to be a valid domain account. Then it worked.
The proxy settings are stored in a XML file in the update manager program folder..... don't remember the name of the file but there is only one (i think)
C:\Program Files\VMware\Infrastructure\Update Manager\downloadConfig.installer.xml
C:\Program Files\VMware\Infrastructure\Update Manager\vci-integrity.xml
Since there's only one it should be an easy choice
You can always go to the Proxy settings and configue it. You dont need to re-install the whole UM. Also, there is a exe file in update manager folder called vum-proxyAuthCfg.exe - you can use this to configure your proxy settings.