depends on your hosting provider - if you don't use the cpanel feature you'll have to look for a .htaccess and .htpasswd file and remove them both.
Paypal callback url goes to /shop/checkout so you must make sure that nothing from that directory upwards is password protected otherwise the callbacl url will not be able to authenticate and then will fail.
I have created a paypal subrscription extension by aletring the one provided by ez. Once I get it working I will post it up