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I don't know why you can't connect. What version of ArcGIS Desktop are you running? You might check the ArcGIS Desktop forums.
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.
This problem has been solved. My company's internet settings weren't compatible with Esri's; my work use a Proxy Auto Config (PAC) file which I think was causing issues. Anyway, my IT Dept. worked at it and it is now working.
I had a very similar issue..(incuding hours searching online..) where only my pc was reporting the issue in ArcMap/Catalog
The service worked fine on firefox, arcgis for autocad and Autocad using WMS
it turned out that Internet Explorer (which I rarely use was set to "work offline")
so a quick unchecking of File --> Work Offline fixed the issue