Make sure DNS, or the hosts file, is correctly configured.
Verify the user account, being used on the proxy server, and the account in VC (also the account name used in the config file) have the appropriate rights.
The proxy server account will need rights to the location specified with the -r switch.
The VC account will need the following Privileges (may want to create a new Role in VC by clicking the Admin button):
Virtual Machine\Configuration\Disk Lease
Virtual Machine\State\Create Snapshot
Virtual Machine\State\Remove Snapshot
Virtual Machine\Provisioning\Allow Virtual Machine Download