IE7- Issue with configuring GPO’s in IE maintainance -> connections

Hi,

I have “IE-setting” GPO created on XP machines with IE6 in win2k3 domain. The same GPO is applied for XP machines with IE7 and vista with IE7. There is no problem with XP machines. However on vista, the policy does not get applied. The proxy.pac is not configured and is grayed out. The order of policies also differs. The policy is recreated using the latest adm templates, still the problem persists. What is going wrong?