from /etc/pam.d/squid
auth required /lib/security/pam_unix.so shadow nullok account required /lib/security/pam_unix.so
Try removing /etc/pam.d/squid. I have just tried this (on Debian Sarge, pam 0.76-22, squid 2.5 stable 7) myself and it works with no manipulation of pam (odd I thought... but if it works).
squid.conf .. (relevant bits only)
### START auth_param basic program /usr/lib/squid/pam_auth auth_param basic children 5 auth_param basic realm Proxy Authentication Required auth_param basic credentialsttl 2 hours
acl authenticated proxy_auth REQUIRED
http_access allow authenticated ### END
And that's it. Works fine.
Attachment:
smime.p7s
Description: S/MIME Cryptographic Signature