I think I found a bug in 2.7. I kept getting this error when trying to upgrade plugins or wordpress itself:
Error: There was an error connecting to the server, Please verify the settings are correct.
I just figured out that it was a password problem. I had the password correct, but the wordpress automatic upgrader doesn't work if your password contains special characters (e.g. +,*,\,%). I tested with an alpha-numeric (letters and numbers only) password and it works just fine.
I can use an FTP client no problem with the strong password, so that makes me think it's a wordpress bug.