I had the exact same error; but the ~/.gitconfig global config file was the key.
If you have a proxy with authentication you need to put in it:
git config --global http.proxy http://login:password@our-proxy-server:8088
And it just works (with ‘git clone http:‘)
Example of a blog detailing the same setup: GIT clone over HTTP: who knew?
If it still fails in 407, it could be related to a problem with git-fetch losing authentication tokens on the second HTTP GET. A more recent version of libcurl might be needed.
Update January 2011: jbustamovej mentions in his answer (upvoted) his blog post “GitHub Behind Corporate Proxy”, which adds this:
It’s important to note that if your login has a backslash, as in
domain\login, you must escape the backslash, as in:
git config --global http.proxy http://domain\\\login:password@our-proxy-server:8088