Same here... upgrading 7.04 to 7.10 
workaround remove the /etc/apt/apt.conf.d/proxy file

sudo mv /etc/apt/apt.conf.d/proxy /etc/apt/apt.conf.d/proxy.old

modified the /etc/apt/sources.list as explained from Claudio Satriano

HTH

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When apt-cacher is used, Update-Manger fails (not #78673 duplicate)
https://bugs.launchpad.net/bugs/113658
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