I am also having this problem. I just became aware of the issue yesterday. I cannot connect to the ArcGIS Online services, our internal services or any published ArcGIS Server. Everytime I attempt to setup a new ArcGIS server connection I am prompted with Error: The parameter is incorrect.
I have confirmed with my co-workers that their systems still work. Prior to noticing the issue I was ArcGIS 10.0 SP 3, I have tried updating to SP 5 and a repair of my ArcGIS install; to no avail. We do not use a proxy for access. Any suggestions would be greatly appreciated!
Update: Some malware changed my proxy settings. Once that was undone, problem solved.