When using Kerberos authentication, clients using the proxy need to reference the proxy by host name, not by IP address.
proxy.pac file that is generated on the Smoothwall will auto-generate depending on the way it was requested.
http://<Smoothwall_IP_address>/proxy.pac will have the IP in the proxy statement.
http://smoothwall.yourdomain.local/proxy.pac will have the FQDN in the proxy statement.
Setting clients to use:
http://smoothwall.yourdomainlocal/proxy.pac as the configuration script should fix this issue.