I am also trying to setup basic authentication for local HTTP mirror server but it is not working.
I followed PatrickL post and in the ERA Console on the server, I enabled Basic authentication in "Tools>Server Options>Updates" and put a username and password in the "Remote Administrator>ERA Server>Settings>Mirror>Username and Password fields" of the policy editor.
I then went to the client machine and put the same Username and Password in the Update>Profile>Settings>Username and Password fields.
I then tried to manually update and I get a license detail windows asking me for a username and password. If I type again the same Username and Password, I get a incorrect username and/or password message.
As soon as I disable authentication in the ERA console, updates work !
Thanks for your help.