Hmm...I was wondering about the same thing! (I posted about this not too long ago!)
From my previous experience, you can't have people viewing your index page once your protect your whole domain directory...
I hope someone answers this! i am in need of an answer too.
As for the CHMOD, I am using CuteFTP but the process should be similar. Just right click on the folder and click
'Properties/CHMOD' and set your permissions to 773