Error setting up http authentication - 500 Internal Server Error

[Hari]

I am using the instruction given at
http://wiki.codemongers.com/NginxHttpAuthBasicModule#auth_basic

When i access the site i get prompted for username and password.
After i enter the username and password i get the error "500 Internal
Server Error"

When i have the following two lines commented out i do not get any error.
#    auth_basic "osusu";
#    auth_basic_user_file conf/passwd;


What am i doing wrong?

Here is the setup of my conf file
==========================
upstream domain1 {
 server 127.0.0.1:8000;
 server 127.0.0.1:8001;
}

server {
 listen   80;
 server_name  www.osusu.com;
 rewrite ^/(.*) http://domain.com permanent;
}


server {
 listen   80;
 server_name osusu.com;

 access_log /home/demo/public_html/domain.com/shared/log/access.log;
 error_log /home/demo/public_html/domain.com/shared/log/error.log;

 root   /home/demo/public_html/domain.com/current/public/;
 index  index.html;

 location / {
   auth_basic "osusu";
   auth_basic_user_file conf/passwd;
   proxy_set_header  X-Real-IP  $remote_addr;
   proxy_set_header  X-Forwarded-For $proxy_add_x_forwarded_for;
   proxy_set_header Host $http_host;
   proxy_redirect false;

   if (-f $request_filename/index.html) {
     rewrite (.*) $1/index.html break;
   }
   if (-f $request_filename.html) {
     rewrite (.*) $1.html break;
   }
   if (!-f $request_filename) {
     proxy_pass http://domain1;
     break;
   }
 }
}
=================

I created the conf file using the utility htpasswd.

Any help on this is greatly appretiated...

-- 
Hariharan Venkata