Test with AVG disabled.  If it works then look at the AVG E-Mail Scanner.  It has a Mail Proxy that could be the problem.  Check out this thread:

 http://www.wilderssecurity.com/showthread.php?t=24560

 If it doesn't work then there is something wrong with the credentials.  Turn on internet session logging to see of the log identifies the problem.  Read the help file about internet session logging.

I have recently installed Pegasus (Dec 2012). But when I try to get mail it fails to read messages, displaying "Peer connect failure" "Host has refused the connection"

I verified my Pop3 and SMPT entries with my Provider. I was offered support, but at a cost of $69 dollars I rejected the idea of paying for what must be simple setup knowledge. My current email client is Outlook which works well.

I use Windows 7. I updated AVG. I tried varying parameters in Internet Options but nothing works.

I hope I can get this solved as Pegasus seems to be well reputed.