We deploy in an existing environment where all outgoing traffic is over a proxy. we use a custom image which has the proxy settings in it. However (if I'm correct) I think WVD tries to download the configuration.zip with the local system account so I made sure that that account can access and download the configuration.zip. I tested that by logging in to the RDS session host, ran IE as local system and then access the url. that worked. However when WVD 'does' the deployment then it still fails. Is there a way to work around this issue or a way to make sure the download is started with the correct proxy settings?
We eventually got it fixed. The process responsible for downloading the configuration.zip is the Azure VM Agent which runs under local system. We made the local system aware of our proxy config by changing the DeFaultConnectionSettings key in SOFTWARE\Microsoft\Windows\CurrentVersion\Internet Settings\Connections.