The urllib2 digest auth handler is totally broken. 

1. It looks for an "Authorization" header instead of "WWW-
Authenticate" (Authorization is the header you send back).

2.  It  thinks passwords in the URL are port names.

3. Even if you get around all that, it just doesn't work. It seems 
to encrypt the thing wrongly and get itself into an infinite loop 
sending the wrong answer back again and again, being rejected 
each time.

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For discussion about number 2 above, see #944396.

Isn't this issue fixed and tested on Lib/test/test_urllib2.py:1304?

let me check that.

Checked with 3.4.0 alpha, works fine. Apart from the tests mentioned, I used the following script to check digest auth:

    from urllib import request

    url = 'http://httpbin.org/digest-auth/auth/user/passwd'
    req = request.Request(url)

    password_manager = request.HTTPPasswordMgrWithDefaultRealm()
    password_manager.add_password(None, url, 'user', 'passwd')

    auth_manager = request.HTTPDigestAuthHandler(password_manager)
    opener = request.build_opener(auth_manager)

    request.install_opener(opener)
    handler = request.urlopen(req)

    assert handler.getcode() == 200

The bug has been fixed a while ago. Python 2.7 as well as Python 3.x have tests to verify digest auth.

Farewell Aaron...