Hi,
I an using Ubuntu 12.04 LTS and squid 3.
Following are the steps I followed and logs
===============================saju@saju-desktop:~
$ sudo vim /etc/squid3/squid.conf#http_access allow localnet
http_access allow localhost
acl localhost src
192.168.1.0/255.255.255.0auth_param digest program /usr/lib/squid3/digest_pw_auth -c /etc/squid3/passwords
auth_param digest realm proxy
acl authenticated proxy_auth REQUIRED
http_access allow authenticated
# And finally deny all other access to this proxy
http_access deny all
===============================saju@saju-desktop:~
$ sudo htdigest -c /etc/squid3/passwords proxy sajuAdding password for saju in realm proxy.
New password:
Re-type new password:
saju@saju-desktop:~$
===============================saju@saju-desktop:~
$ sudo cat /etc/squid3/passwordssaju:proxy:996433679dbeb9e1d972457249f9a9b1
===============================saju@saju-desktop:
~$ sudo tail -f /var/log/squid3/access.log1359115078.818 0 192.168.1.6 NONE/400 3512 GET saju - NONE/- text/html
===============================saju@saju-desktop:~
$ squidclient -h 192.168.1.6 -u saju
Proxy password:
HTTP/1.0 400 Bad Request
Server: squid/3.1.19
Mime-Version: 1.0
Date: Fri, 25 Jan 2013 11:57:58 GMT
Content-Type: text/html
Content-Length: 3154
<p>The following error was encountered while trying to retrieve the URL: <a href="saju">saju</a></p>
<blockquote id="error">
<p><b>Invalid URL</b></p>
</blockquote>
<p>Some aspect of the requested URL is incorrect.</p>
<p>Some possible problems are:</p>
<ul>
<li><p>Missing or incorrect access protocol (should be <q>http://</q> or similar)</p></li>
<li><p>Missing hostname</p></li>
<li><p>Illegal double-escape in the URL-Path</p></li>
<li><p>Illegal character in hostname; underscores are not allowed.</p></li>
</ul>
<p>Your cache administrator is <a href="mailto:
webmaster?subject=CacheErrorInfo%20-%20ERR_INVALID_URL&body=CacheHost%3A%20localhost%0D%0AErrPage%3A%20ERR_INVALID_URL%0D%0AErr%3A%20%5Bnone%5D%0D%0ATimeStamp%3A%20Fri,%2025%20Jan%202013%2011%3A57%3A58%20GMT%0D%0A%0D%0AClientIP%3A%20192.168.1.6%0D%0A%0D%0AHTTP%20Request%3A%0D%0A%0D%0A%0D%0A">webmaster</a>.</p>
<br>
</div>
<hr>
<div id="footer">
<p>Generated Fri, 25 Jan 2013 11:57:58 GMT by localhost
(squid/3.1.19)</p>
<!-- ERR_INVALID_URL -->
</div>
</body></html>
saju@saju-desktop:~$
===============================