I hate to bring bugs into this topic but seems possible that this is something Windows related.

But auth_basic is not working.

I have not tested on a official NGINX build i am using itpp2012's builds what could be why it is not working but this is my config.

location ~ ^/(administrator) {
auth_basic "Restricted Area";
auth_basic_user_file C:/server/.htpasswd;
}

And the output result is this.

2014/10/21 14:09:19 [error] 5208#6132: *1 user "admin": password mismatch, client: ::1, server: localhost, request: "GET /administrator/ HTTP/1.1", host: "localhost"
2014/10/21 14:09:20 [error] 5208#6132: *1 user "admin": password mismatch, client: ::1, server: localhost, request: "GET /administrator/ HTTP/1.1", host: "localhost"
2014/10/21 14:09:21 [error] 5208#6132: *1 user "admin": password mismatch, client: ::1, server: localhost, request: "GET /administrator/ HTTP/1.1", host: "localhost"

Also i use the following to generate the htpassword file : http://www.tools.dynamicdrive.com/password/

And regardless of why i set the password to it does not authorise me access the username i always set as admin

this is the current htaccess :
admin:Wjki8C1VIunc2

So that would be
Username : admin
Pass : lol123

But everylogin results in a password mismatch ?