I can confirm this bug on a brand-new install of 12.04.  The files of
/var/lib/apt/lists/ all seem to contain the text about logging in from
the proxy server.  Clearing out this directory solves the problem.

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https://bugs.launchpad.net/bugs/346386

Title:
  [MASTER] Update fails with invalid package files with "Encountered a
  section with no Package: header"

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