do you have shell access to your web server? i remember a while back i was working on getting .htaccess to work with my .htpasswd file and i was having trobule. i found this command to create the .htpasswd file and it ended up working out.
Code:
$ htpasswd -c .htpasswd <username>
you would need shell access to the server to execute that though. also, you would need to be in the directory where your .htpasswd file is stored to use that exact format.