If your phone connects to the internet via a proxy then you will not be able to connect from the internet to your phone unless the proxy supports forwarding.
If the proxy is within your control, such as your own wireless router, then you should be able to configure forwarding on the router.
If you connect to your telephony provider via a proxy then you will not be able to configure forwarding and dynamic DNS will be of little use, although with some providers you will be able to connect to other phones using the same provider.
There's a setting "Public IP address" which tells it not to set your dynamic address to be the IP address detected by your phone. If this is selected then your dynamic address will be set to your public IP address, which will not be the same as your local IP address if you're behind a proxy.

There's also a setting to disable updates when connected to Wi-Fi. By definition, Wi-Fi is a proxy, so all the above applies, and so there's probably no point in updating this IP address, unless it's your own Wi-Fi router and you've configured it to route incoming connections to your phone.
Some providers will ban you for sending too many updates, even if the IP address is changing. If you're walking around the house and the Wi-Fi is periodically connecting and disconnecting then you'll still send a lot of updates and get banned, so disabling Wi-Fi updates should also help in that case.

Some common settings for "Update domain" (the domain that IP address updates are sent to) are:
No-IP: dynupdate.no-ip.com
ChangeIP: nic.changeip.com
ZoneEdit: dynamic.zoneedit.com/auth/dynamic.html
easyDNS: members.easydns.com/dyn/dyndns.php
enom: dynamic.name-services.com/interface.asp?command=setdnshost&domainpassword=<password>
dnsmadeeasy: cp.dnsmadeeasy.com/servlet/updateip?username=<email>&password=<password>&id=<id> (doesn't work with "Public IP")
namecheap: https://dynamicdns.park-your-domain.com/update?password=<password>&domain=<domain> (enter your subdomain as "Hostname")
Joker: https://svc.joker.com/nic/update?username=<username>&password=<password>

The default path is /nic/update - you do not need to enter this, but if you need a different path then you can enter it.

Some services also allow you to specify https. Joker and namecheap are the only ones that enforce it.

This app can be used as an action for Locale and Tasker. This allows you to do things like send a Start command once every 24 hours, send a Stop command when you connect to WiFi, etc, etc, etc...

Version 2.0.8 - 05 May 2012
Fix for easyDNS - handle the response they actually return, as opposed to the response their spec says they return.
Remove DNSExit code. It never worked because their protocol is too far from the standard.

Version 2.0.7 - 27 April 2012
Add support for DNSExit.

Version 2.0.6 - 06 April 2012
Add support for easyDNS.

Version 2.0.5 - 11 March 2012
Add support for dnsmadeeasy.

Version 2.0.4 - 22 February 2012
Add support for IPv6. It's a bit experimental, so please let me know how it works.

Version 2.0.3 - 07 December 2011
Support the new ZoneEdit response.

Version 2.0.2 - 15 November 2011
Fix a crash on some devices.
Notify nochg but don't stop updating.
Support namecheap.com.

Version 2.0.1 - 01 November 2011
Better handling of retries.
dnserr and 911 are "transient fatal errors" that can be automatically retried after 30 minutes, as per specification.
Handle (ignore) IPv6 addresses.
Auto-completion of hostname for official app.
Use https instead of http for official app.
Support changeip.com.

Version 2.0.0 - 09 October 2011
Redesign main screen.
Better support for detecting your public IP address.
Better avoiding of nochg responses that could get you blocked for abuse.
Stop on fatal error, as per specification.
Added the DynDNS.com app.

Version 1.2.5 - 22 July 2011
Make DynDNS function as a plugin for Locale and Tasker.

Version 1.2.4 - 16 June 2011
Also support enom.

Version 1.2.3 - 18 May 2011
Rename "Local area network" to "Public IP address" and reverse the meaning. Note that your previous setting is not migrated. The default is true.

Version 1.2.2 - 06 December 2010
Internal changes.

Version 1.2.1 - 31 October 2010
A better fix for detecting IP address when tethered.

Version 1.2.0 - 25 October 2010
Detect IP address correctly when tethered.

Version 1.1.9 - 27 September 2010
Better handling of variations of response.
Increase Android dependency from 1.1 to 1.5.

Version 1.1.8 - 28 April 2010
Prevent it from running continuously.

Version 1.1.7 - 23 March 2010
Do hints for domain and hostname preferences.
Make compatible with Android 1.1 (previous versions unnecessarily required 1.5).

Version 1.1.6 - 25 February 2010
Wait for network to settle down before sending updates. This is necessary for the Motorola Droid which reports connection changes in the wrong order.

Version 1.1.5 - 02 February 2010
Add a setting to not send updates when connecting to Wi-Fi.

Version 1.1.4 - 01 February 2010
Don't write password in log file.

Version 1.1.3 - 22 October 2009
Allow "Update domain" to contain more of the path, including starting with https and ending with parameters. This allows it to work with many more DynDNS providers, including Joker.

Version 1.1.2 - 05 May 2009
Make "Local Area Network" setting also work with ZoneEdit.
Change "Domain" setting name to "Update domain" and make the path optional.

Version 1.1.1 - 25 March 2009
Add "Local Area Network" setting.

Version 1.1.0 - 10 March 2009
Detect proxy and tell user about it.
Make it also work with ZoneEdit.
Remove boot option. After boot it will continue in the same state it was in before boot.
Prevent About and Settings panels appearing in API demos.
Some structural, non-functional changes.

Version 1.0.0 - 04 March 2009
Initial version.

Please send all comments and suggestions to android@L6n.org.