Updating from IE6 to IE7 messes up internet connection settings: applications think there’s no connection when there is, opening one connection dialogue causes another one to appear. Ah, joy.
It just means that avast! is trying to connect to the update server and cannot see that there is a connection in existence already. On my computer, trying to manually update any program would result in an internet connection dialogue even when already connected after the IE6 to IE7 update.
In my case this was using a USB ADSL modem. Users of other connection methods didn’t seem to be affected.