I’ve experienced the same problem and I’m glad to see someone finally figured out what username / password combo it was asking for!
I’m running iTunes 7 (7.4 right now but I’ve experienced it in other versions) on WinXP as a client, and SVN-1671 on an Ubuntu Feisty server, but also noticed it with a few other nightly builds.
It only does this on video files, I’ve noticed it on both .mov and .m4v files. The box pops up with the ip address of my server, shows that it’s trying to access some form of “webserver”, and wants the username and password. Everything else works just as the original poster described.
Hope this helps!
-Matt