Caveat Emptor: I’ve never actually done this method, I am merely documenting the hypothetical method because I will one day need to do this and I have a bad memory
Like many WordPress users, I would like to be able to password protect an entire category. Admittedly, I didn’t spend too much time looking for a plug-in that would accomplish this. But by the volume of fellow searchers, I think that it’s safe to say that as of now (May, 2009), this functionality is not built in to WordPress, nor is it available in any stable, easily found plug-in. (Please show me I am wrong in the comments!)
So here’s my solution: create a new directory (I’m guessing it has to be outside of your WordPress directory, as I imagine WP does not allow deeplinking inside its’ own install directory – although tinkering with .htaccess files and permissions on that directory may work) and create a whole new installation of WordPress. You can password protect the entire directory using .htaccess, and configure it so it has only one category (or multiple categories, or subcategories, or whatever.) Then all you need to do is create a link in your sidebar or header, or whatever, to this directory, and the login window will popup.
If you use the same templates, the user should never really notice the change – for all they know, they are in the same blog, all that really changes is the last portion of the URL. And by creating direct links to categories in your original blog in the same way you did to this new installation directory, you can provide the same navigation you would have had as if it were all on one installation.
The drawback would be if your users wanted to comment on the content – you would have to set up the two installations to run on the same login database. I’ve never done this, but I am sure it’s not a new question.
So maybe it’s more work than necessary, and I’m sure the folks at WordPress are aware of this feature request, so this may be obsolete soon if not already. But I think this is one way to accomplish this functionality.