webservice with authentication browser popup missing after release/deployment

[Purushotham_Nayak]

I'm writing a flash (flex actionscript) application that connects to a webservice using mx.rpc.soap.WebService over https and using Basic Authentication. I understand that flash will remove the authentication headers if there is no crossdomain.xml file on the server root. In development mode when I run my flash application the browser still pops up the authentication request. When I enter it the app runs fine. But when I create a release and run it using the browser I don't get the browser popup and authentication fails and my application cannot continue. Does anyone know how to fix this?

My code is below

var ws:WebService;
var encoder:Base64Encoder = new Base64Encoder();
encoder.insertNewLines=false;               
encoder.encode(event.credentials.username + ':' + event.credentials.password);

var encodedCredentials:String = new String();
encodedCredentials = encoder.toString();

ws = new WebService();
ws.addEventListener(FaultEvent.FAULT, onFault);
ws.addEventListener(ResultEvent.RESULT, onResult);
ws.httpHeaders = {Authorization:"Basic " + encodedCredentials};
ws.loadWSDL(event.credentials.url + "?wsdl");

[Purushotham_Nayak]

I also noticed that when I release to bin-release under the project folder. I get the popup window. But if I release to a different folder outside of the project then I don't get the popup and authentication fails. I've gone through the deployment documentation but can't think of what I might be missing.