The problem is that your proxy is not configured to allow the CONNECT method which FlashFXP requires. You will need to contact your isp and ask them to enable support. The CONNECT method provides a lot more control over the GET / POST methods and is required to FXP.
You can pass this on to your admin. This must be added to your squid.conf file.
acl CONNECT method CONNECT
http_access allow CONNECT
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