I had the exact same problem (as have others). I contacted tech support and got the following reply (edited to get to the point):
---- begin quote (sort of) ----
[Y]ou likely initially made the directory with WebDAV enabled... When WebDAV was later disabled [ownership changes did not put the directory back in a state where FTP would work]... if you just want to password protect a directory you do not need WebDAV, which will prevent FTP access to the directory.
----- end partial quote (from Kelly in Customer Support) ----
Kelly actually fixed my directory for me, but I suggest you delete the directory, wait for the servers to update (usually less than 10 minutes), then recreate the directory, being sure to not enable the WebDAV checkbox.