Mark Pilgrim has written a fairly technical yet easy to read article on how the Atom Authentication protocol works. They have chosen to base the procol on the Web Services Security UsernameToken Profile which is, while not finalized, a reasonably secure authentication protpcol.
I think they made a good choice — it's kinda ironic that Atom API, which is based on REST, is leveraging an ongoing work to secure SOAP-based APIs — and would like to see the procol implemented for XML-RPC-based Blog APIs as well.
Only problem is that it places a burden on the client to calculate SHA1. Yes, there are JavaScript implementations of SHA1 and they are fairly fast, but you will still need either JavaScript or Java VM on the browser. And then there are mobile devices which are still behind the curve on the computing power. Oh, well. It's difficult to find a universal solution anyway.
BTW, using just plain username and password is just fine for most blogs IMHO. This stuff is mainly for corporate users posting to internal blogs, yet-to-emerge infrastructure blogs upon which many people depend on to receive critical information in timely fashion, and trusted blogs like those featuring press releases (coming real soon I hear). Just be sure to backup your blog content though just in case someone gets pissed off at what you write and decide to paint your blog red.
