Took me a while to figure this out, but I started a download of a large torrent and midway through, I had to change my proxy settings (I think my ISP started filtering traffic between me and that IP or something). So I changed them in the UI and even restarted deluged, but I was still getting connection error. Finally I started grepping through the .config/deluge directory and found that the session.state file still had the old proxy config settings.
Once I manually edited the file (making sure to update the string lengths!) and restarted deluged everything worked great again. I'm guessing most users would never figure this out.
I tried creating a bug in trac, but never got the registration confirmation email?