Hopefully not premature, but if anyone else hits this gotcha, here's how I fixed it.
The problem: Right in the beginning of the installer, just after language selection, the installer checks requirements and reports on two things- The disk space (8.6Gb required) and the internet connection.
When the screen comes up, my internet connectinons is initially ticked (ie passes the test) and then it turns to a no-entry sign - ie fails the test and then the option to download updates while installing is also disabled.
I traced and resolved the problem as follows:
- "quitting" the installation which took me to an Ubuntu live desktop session
- opened a terminal to check network
- ping worked but no dns -> ie ping www.google.com
failed but pinging the IP for www.google.com
- modified /etc/resolv.conf: deleted the existing nameservers and replaced with the address of my local modem-router (192.168.10.1) which, I presume, forwards DNS requests to my ISP's nameservers.
- thereafter I was able to ping www.google.com
- Then re-ran the LinuxMCE12.04 installation from the desktop icon
This time, when I got to requirements, internet connection stayed clicked and I was able to proceed with installation.
I traced the problem to DNS. For some reason the nameservers specified in /etc/resolv.conf do not work for me so I just replaced them with a pointer to my local adsl-modem-router address (192.168.10.1) and that fixed it.