Windows Update uses a protocol called SOCKS rather than the usual HTTP / HTTPS.
I had a problem when I was using a software proxy that didn't support SOCKS; could surf the net and see the Windows Update site but not download anything. Fixed when I used a different proxy.
Does your broadband happen to go through a proxy or similar that dial up doesn't (eg a proxy within an ADSL router)? If so, is it configured to allow the SOCKS protocol?
RC