Hi Ali,
hmm.. hard to say what could be causing the error. Have you enabled authentication in the proxy?
Maybe you could try using the soapUI SOAP Monitor functionality as proxy instead? ie setup a SOAP Monitor in soapUI on your local machine and configure it as a proxy, then point your client (soapUI on another machine) to use this as a proxy as you have done.. You should be able to see requests going to your local service throught the soapUI monitor, and hopefully get more error information if it still doesn't work..
keep me posted!
regards,
/Ole
eviware.com