Why doesn 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 http://nagoya.apache.org/bugzilla/show_bug.cgi?id=25040. You may also want to read over http://subversion.tigris.org/issues/show_bug.cgi?id=1608 to see if the description there matches your symptoms.