As I suspected, this seems to be a conflict with OpenDNS. The connectme device seems to phone home to a domain that is blocked by OpenDNS (its not skype.com). However there is no indication as to what this domain might be. This is a really bad installation routine as it gives the customer no idea as to what is going on and what to do to trouble shoot the problem. The online FAQ for this problem is also useless!!
Anyhow, took the unit to a friend's house (no OpenDNS) set it up in about 3 minutes and then brought it back home where it works fine. So problem solved even though still don't know which domain to whitelist for the installation routine.
My unit is at the 1.0.1 firmware. Waiting to see if/when it updates. Again no button to initiate the update manually.
I undertand that companies want to reduce complexity for their customers but this is the wrong way to do it!! Epic fail on installation. 
We will see how it actually works.
Btw, emailed tech support four or five days ago. No response - not even an autoresponder. I know its Christmas but from online posts the vendor support for this product is really poor.
Anyhow, if you ever get the "No connection to the internet detected" message during installation and you know that your internet is working AND you are using a web site filtering service like openDNS, try to get the filtering service out of the loop, install and then reanable the filter.
Hope this helps someone down the road.
