Yes I think I know this, maybe it has got something to do with how the
Netscape sends the password to the proxy server. Windows usually encrypts
the passwords in different formats (maybe, someone please throw some light
here). I am not sure if the encryption on the proxy server and the Netscape
end is same. I had a similar problem but with samba though and I solved the
problem by enabling the plain text password exchange between Linux and
windows. Usually this can be found in the registry key in the windows.
HKEY_LOCAL_MACHINE\SYSTEM\ControlSet001\Services\lanmanworkstation\parameters\enableplaintextpasswords set this value to 1 and disabling the encryption on the samba server settings. Please note this can be dangerous as the passwords not encrypted can cause potential problems

I am not sure if such a thing is possible in linux for connectivity to
ms-proxy..

MS-Proxy uses a form of authentication called NTCR (Windows NT
Challenge/Response) which only Internet Explorer implements.

In short, you cannot use Netscape through MS-Proxy, only IE.

I dug up a reasonable explanation here:
list.opera.com/.../005386.html

I wonder if the latest ruling against Micro$oft means that they'll have to
open MS-Proxy's authentication procedures to other browsers... If it weren't
for the fact that there is a Mac version of I.E., it would mean that all
clients would *have* to run Windoze to work with it.

I got it worked except for hotmail site.

You install python and one program that sends the
requests by changing the headers so that MS-Proxy
thinks that it is request from IE and authenticates
you.
(you need to put some parameters in config file)