Welcome to LinuxQuestions!
Nagios is one hell of a nasty place to start your time with Linux! Anyway...
It sounds to me too like Apache can't read your htpasswd files. I'm assuming that your nagios is living in the default location of /usr/local/nagios if this isn't the case then adjust these paths as necessary...
What do you have in /usr/local/nagios/sbin/.htaccess? I would expect it to looks something like
AuthName "Nagios Access"
ls -l /usr/local/nagios/etc/htpasswd.users
return? It should be chmod'ed to 644 and not owned by either root or the nagios user. How did you add your users to the htpasswd file?