I think that I have a failure recipe here.

On Linux (in this case, Ubuntu 8.04) install svn 1.6.5. I built mine from
source. Put it in the path of the hudson slave instance.

Use it at least once from command line as the user who operates as hudson.

then try to run a job that touches subversion. You'll get an exception from
svnkit about 'authentication interrupted'.

I believe that the reason is a dispute about storing cleartext passwords in the
.subversion directory.

I claim that hudson should maintain its own .subversion directory distinct from
that of the user, and it should either automatically configure it or pass enough
options into svnkit to avoid this.