Like everyone else, I have experienced the issue (repeated prompting for proxy credentials) since v10.6. With v11, it got even worse in that I wasn't even prompted for proxy credentials anymore. I was simply given an error message that "iTunes could not connect to the iTunes Store".
I have a work around but I'll also share some background as well.
WORK AROUND:
My company uses Microsoft TMG for a proxy. I had to create a rule in TMG that allows annonymous access to *.apple.com and *.mzstatic.com. This is a work around because I'm essentially bypassing the need for users to be authenticated in order to connect iTunes to the Internet.
BACKGROUND:
I proved that the issue was with iTunes v10.6 by uninstalling it and installing an older version of iTunes (e.g. v10.2). I opened a case with Apple and had it escalated to Engineering. I sent Apple my company's wpad file, and I tested each subsequent version of iTunes (e.g. v10.6.1, 10.6.3, 10.7, etc...) and reported back that there was no change. Then with v11, there was a change... for the worse. Instead of being repeatedly prompted for proxy credentials, I was completely shut out of the iTunes store, being told "iTunes could not connect to the iTunes Store". To date, Apple has not resolved the issue and my case remains open.
This is what forced me to come up with the work around. Using a tool called Fiddler, I identified the two domains iTunes talks to when connecting to the Internet. With annonymous access allowed to *.apple.com and *.mzstatic.com, iTunes v11.x is now working again.
I still want Apple to solve the problem as versions of iTunes prior to v10.6 did work with my proxy server, and I don't like relying on a proxy rule that makes an exception for iTunes.