I just discussed a similar problem with Microsoft. Basically, it won't work because NTLM (The NT authentication your Proxy 2 machine uses) cannot be cached and passed to another proxy. See http://support.microsoft.com/support/kb/articles/Q183/5/45.ASP?LN=EN-US&SD=gn&FR=0&qry=Q183545&rnk=1&src=DHCS_MSPSS_gn_SRCH&SPR=WIN2000