Especially when you are using Squid as a transparent proxy. As time goes on, squid becomes more and more HTTP 1.1 compliant but until that time, your best course of action to prevent problems with WSUS is to set the WSUS server to only do 'foreground downloads'. You lose the ability of the WSUS server doing HTTP range-requests, but you also don't end up with a saturated pipe because your server and clients are constantly downloading updates over and over again.
Case in point: Before the WSUS client came out and the older versions of BITS clients were on the XP machines behind a Squid server, they kept trying to grab updates and failing, which ended up saturating the internet connection at the office this took place. Sure, you can set GPOs for BITS to only download a certain amount during certain hours but you would still end up with the same result.
Bottom line: If you are using Squid with BITS/WSUS, make sure all your clients have the BITS 2.0 clients - which you should have by default if you are using WSUS. If your WSUS server is behind the proxy too, make sure to download the WSUS Debug Tool from
http://www.microsoft.com/windowsserversystem/updateservices/downloads/default.mspx
and tell it to do Foreground downloads only.
If you don't want to bother with the debug util, you can also go into the WSUS SQL tables and modify table tbConfigurationC, and set BitsDownloadPriorityForeground to 1. The debug tool makes it a no brainer though.
As a side note, once I had all the client machines behind the WSUS server for updates, I ended up changing the BITS GPO to basically go "full blast" during off-business hours since the machines were no longer downloading any content from the internet but from the local server. That kind of traffic I'd rather have go as fast as possible if I can help it. Sometimes BITS tends to 'trickle' too much on the default settings.