Are you specifying the realm? I've been debugging the code for a while here and the problem (or my problem anyways) is this:

I specify my credentials like this:

credentials(
  -user => 'username',
  -pass => 'password',
  -url => 'http://localhost'
)
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Now, credentials get stored in a hash like this:

{
  'netloc' => {
    'realm' => [ 'username', 'password' ]
  }
}
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By setting the credentials without a realm, it puts them under the default realm, so we end up with:

{
  'localhost' => {
    'default' => [ 'username', 'password' ]
  }
}
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The problem is that for some reason after connecting, it discovers the realm name and decides to populate the hash above with an empty set of credentials for the realm:

{
  'localhost' => {
    'default' => [ 'username', 'password' ],
    'YOUR_REALM' => [ ]
  }
}
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When it goes to retrieve the credentials, it goes in this order:

{ netloc }{ realm }
{ default }{ realm }
{ netloc }{ default }
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Since it entered blank credentials for the netloc+realm combination, it grabs those first. Seems like there's something wrong, it probably shouldn't be entering in the blank credentials.