Having always installed the archive versions of XAMPP from way back (except of course when there is a major upgrade that requires a fresh install) all I do is use the archive upgrade files which just overwrite old files but do not delete deprecated files - so I do have mod_auth_mysql still in place in my 1.6.8 version and thats why I posted the above reply.
So in researching this issue, but with limited time, I noticed that there may be commercial/license issues with this mod, details though are a bit sketchy.
In the XAMPP 1.6.8 readme_en.txt file I noticed this little gem...
(2) To use the experimental version of mod_auth_mysql remove the # in the httpd.conf. Detailed information about this topic can be found on the left menu of XAMPP, once you started it.
...but I am unable to find any detailed topic info in the left menu of the XAMPP page, though it clearly states that it is experimental so there may be issues as you so aptly pointed out.
I have read about there being mod_auth_mysql replacements, but did not have the time to investigate further, I came across and did read all of this article though, which you may also have read, that may or may not help your case.
Apache and MySQL Authentication
Perhaps other forum members may have some experiences and info to share with us - also if you do find an acceptable solution you too may be willing to share it with the community and post it back here.
Good luck with it.