It's true that Apple ships their version of Apache 1.3.x with the obsolete mod_digest module (which doesn't work with their own iCal product). Curiously, Apache ships 1.3.x with the up-to-date mod_auth_digest.
You can get a precompiled version at:
Install it in some convenient location (like, say /usr/local/libexec) and replace the loading of mod_digest in your httpd.conf file with
LoadModule digest_auth_module /path/to/mod_auth_digest.so
After that, you should be good to go with digest authentication.