Hopefully this will help out some other people who might be in the same boat as I was...
I was running a program called NetLimiter which allows you to limit the amount of bandwidth used by applications. The version I was running was one I had been using for a LONG time, version 1.3. Having this installed prevented WAU from working properly. Removing it allowed WAU to work properly. I'm not sure if there is something you can do to the code of WAU to stop that from happening, or even if you need to since it is such an old version...
So I did some research and found another traffic shaping application called DU SuperController version 1.9 and it does not cause any problems with the WAU.
Then I wondered if it was just NetLimiter itself, so I bought the lastest version of NL, 2.0.10 and it does not cause any problems with WAU at all.
Like I said, hope this helps someone else as this was maddening LOL :)
I think that you are running some kind of firewall program or proxy which is blocking WAU.
Well I had an idea last night at 3am to try running the app from safe mode with networking. Verified that http was working with browser and fired up the app but it didn't pull anything or make the temp file entries, same error about not being able to reach host.
I've made it partially work once by doing about 10 things, so now I just need to see if I can recreate that one step at a time to find out what might be causing the issue. I'll post back if I get it figured out! :)