I've tested it in my environment and it works. I'm using a NAS box but here's what I did.
.htacces file consists of:
AuthName "Enter username and Password"
Require user Chris
.htpasswd contains the user and associated password.
I'd recommend calling your .passwd file .htpasswd as it should have inherent apache security to stop people viewing the file as a url.
It all worked fine for me. I did try ./.htpasswd but the failed. This was due to the .htpasswd file not being found in the folder it wanted to look in rather than the local same folder as .htaccess.
I can't see why it would work but doesn't after upgrading to v3. This is an apache thing not an Evo thing.
Hope that helps some.