Brian -
"Use a LiveUpdate Server" is unchecked. The only fields checked are GUP and Use Default Management Server. And within the GUP settings only Use a Single GUP Provider is checked.
Aashish -
According to the SEPM and the SEP Client the machines in question do have the most up to date Policy applied to them. So they should not be making any attempts to LiveUpdate Servers.
SMLatCST -
We're currently running 12.1 RU2 on all SEPMs and GUPs. The machines currently exhibiting this issue are running primarily 11 RU6 MP2