First off, are you making sure you use MD5 encryption on the password? There is a program that comes with apache that can do it through the command line. Or you can make a small .php page and put:
<? echo md5("Password") ?>
And it will yeild the MD5 version of your password to put in the .htpasswd file. Remember since MD5 is a case-sensitive encryption, your password is then thus case-sensitive.
Additionally, from the code you posted I assume your running apache on a windows OS?