Really quite simple question, I've got a local apache server running on my small computer to operate the phproxy script, after which setup the .htpasswd and .htaccess files to secure it. All went well, except I am unable to login while using unencrypted password when i thought you could, is one thing wrong or did I hear wrong? Thanks ahead of time.

You need to use digest authentication.

Short guide:

However it's md5, therefore it is not so secure in the end (but always better then plaintext).