lecaros and jerrykhan: Do you guys by any chance have a registry key HKCU\Software\Microsoft\Windows\CurrentVersion\Internet Settings\ProxyOverride?

I'm guessing this setting is causing urllib to avoid using your default proxy for hosts on your local network, thereby saving you the 407 (the 407 means your proxy is complaining that you've not succeeded in authenticating).

If so, the difference between urllib and urllib2's behaviours does not imply a bug, but just that urllib2 is missing support for getting proxy overrides from the Windows registry.  This could easily be added.