Problems with Password Protected folders

Has anyone got this to work without some kind of work around hack?
 
It seems that Hosting Controller is not creating the necessary files for everything to work or I may be doing something wrong.  Who knows. 
 
This is the error I am finding in the logs after creating a ftp user and giving the user permission to the directory:
[Wed Aug 04 13:56:25 2010] [error] [client 76.10.121.66] (2)No such file or directory: Could not open password file: /webspace/ignus/ccec/kwh.com/www/html/test/kwh.com_test.htpasswd
[Wed Aug 04 13:56:25 2010] [error] [client 76.10.121.66] access to /test failed, reason: verification of user id 'test' not configured