I've got the same problem of not being able to get to pages within a password-protected directory, which resides at the root alongside my 2.5 WP blog.
None of the 3 inputs (given at msmeritt's link above) for .htaccess worked in this case and I wonder if others are experiencing this problem with WP version 2.5.1?
I've tried to modify the index.php file as per http://gqshen.com/archive/221, but no go.
Htaccess mods didn't help either, where this block was added above the WP section for the folder stats:
# WP Fix
<IfModule mod_rewrite.c>
RewriteEngine On
RewriteBase /
RewriteCond %{REQUEST_URI} ^/stats/(.*)$ [OR]
RewriteCond %{REQUEST_URI} ^/failed_auth.html$
RewriteRule ^.*$ - [L]
</IfModule>
Next, I'll try the template-mod to check for a logged-in, registered user before showing the members-only content.
Anybody having trouble with password-protected pages and directories in v2.5.1?