Digest mode has the issue that you need the plaintext password on the server side in order to do the authentication.
I did in fact read the article, and I do now agree that you only need to send MD5(username:realm:password) to the remote server to do the authentication.
The problem that I do see is that it is trivial for a MITM to either intercept the transaction and force the client into a less secure mode (ie. basic auth), and then read in the password, or else just reuse the auth credentials for another transaction.
I would recommend that you look at http://en.wikipedia.org/wiki/Secure_Remote_Password_protocol and the concept of a "zero knowledge password proof" which seems to be the concept you were looking for.