You might save yourself some trouble and use Basic authentication over SSL. If you're not using SSL, then I suppose Digest would be the way to go. Then again, if you are not using SSL, you're not really secure.
I would test your REST server using CURL to figure out whether your problem is on the client or server
$ch = curl_init();
curl_setopt($ch, CURLOPT_URL, "http://mynew/api/");
curl_setopt($ch, CURLOPT_HTTPAUTH, CURLAUTH_DIGEST);
curl_setopt($ch, CURLOPT_USERPWD, "admin:1234");
// need to get WWW-Authenticate header from the server (for realm and nonce) with a HEAD request
curl_setopt($ch, CURLOPT_NOBODY, 1);
curl_exec($ch);
// the get the real output
curl_setopt($ch, CURLOPT_RETURNTRANSFER, 1);
curl_setopt($ch, CURLOPT_HEADER, 1);
curl_setopt($ch, CURLOPT_HTTPGET, 1);
$output = curl_exec($ch);
echo $output;