Edward,
You're actually closer to the solution than you may think -- it's a combination of the two methods you have tried. The answer is that the slashes should be forward '/' rather than back '\'. It would read something like this:
AuthUserFile "C:/phpdev3/Apache/cgi-bin/.htpasswd"
Remember to not put the .htpasswd file in the root directory, but in something like /cgi-bin/ so others can't access the file.
Ben