Why doesn't HTTP Digest auth work?

This is probably due to a known bug in Apache HTTP Server (versions 2.0.48 and earlier), for which a patch is available. See the links below for more information.

Read the info in the second link to see if the description there matches your symptoms.

Related information
http://nagoya.apache.org/bugzilla/show_bug.cgi?id=25040
http://subversion.tigris.org/issues/show_bug.cgi?id=1608