Meh, easy answer.
Go to your ISPs website, and find their TOS.
In there, there should be a section to proxies. Allowed, not allowed etc. If they cool, host it. If not, hell, still host it.
Also, are you going to make it a browsing only proxy, or downloadable?
If downloadable, make sure you keep NO files on your PC.
Also, logs don't have to be present.
You do, however need a disclaimer. This needs to state somewhere that you do not monitor what is passing through the proxy, and that you do not store any traffic from the proxy on your server.
However, if a written complaint is handed to you from your ISP, you will be eligible to shut-down the proxy without notice, pending investigation.
Investigation, you might ask? Well, don't worry about that my friend, because this is the reason why you did not monitor, nor store any traffic to your proxy server.
Basically, all you need to do is see how Rapidshare etc do it. I know they aren't a proxy, but they have a way of allowing any data to be stored on their server, until a complaint is written. Also look at other free proxies, and read their disclaimer. There is a way around everything. The points above is but a few.
I will support your proxy, and anything forward from there.
Good luck.
