Wardrop

Nope. No proxying here. I've just ended up excluding this particular update, as it seems to apply to Server 2016 Technical Preview 5 anyway. I achieved this by going to the properties of my auto deployment rule, and on the "Software Updates" tab, ticking "Article ID" and typing "-3172989" as the value. This excludes KB3172989. The Automatic Deployment Rule has since run successfully. Screenshot included.

Mine is Server 2012 R2, and I'm having the same exact issue.

Been having the exact same issue for weeks, ever since setting up an Automatic Deployment Rule for Server 2016 in SCCM. Same update, KB3172989. Such a pain.