Synopsis: User Authentication not functioning State-Changed-From-To: open-closed State-Changed-By: marc State-Changed-When: Wed Mar 11 11:36:19 PST 1998 State-Changed-Why: In 1.3b3 the password file has to be relative to the ServerRoot or DocumentRoot; forget which. Look in the error log to see what file it is trying to open. You may also have your file formatted incorrectly, or not have a trailing end of line; try adding a blank line at the end.
The format has to be "user:password" on each line, with password in plain text. As to why a htaccess file isn't working, you probably don't have the proper AllowOverride set for that directory in your *.conf files to allow AuthConfig to be changed in htaccess files.
