I just finished my upgrade to 2.2 and suddenly I am experiencing this problem. I know it was working prior to the upgrade, because I recently was testing the password protection for another reason. I use Firefox, and do not use wp-cache. I did test on IE and got the same results – the page just refreshes and the password box is clear again. I guess it doesn’t really matter for me, since I am the only one who would read these posts, but it is annoying.