Just FYI, if you are in development and happen to have the root directory under an additional layer of authentication (server level), using the flash-based media uploader causes the browser to freeze up (in admin), at least using the latest Firefox browser.
You can be authorized at the server level to work within the admin and view the public pages of the site, but during upload of media files using the flash uploader (so you can upload multiple images at one time) the first image begins to "crunch" then you are AGAIN prompted to login (server level) even though you were already logged in.... after login, the "crunch" value drops to 0% and nothing happens after that.
I've tried this repeatedly, waiting up to 15-20 minutes just to see if the uploader ever starts back up (no joy).
IMHO, I believe that server level password protection should not interfere with the media uploader just because I'm using the flash version. The browser version works (as painful as it is to upload one image at a time!) as does the rest of the admin functions.