squid.conf is going to use a password file locally on that machine created with the apache htpasswd tool.
To create the password file follow these directions (assuming apache is installed) :
#/usr/local/apache2/bin/htpasswd -c /usr/lib/squid/passwd testuser
(-c creates a new file and will not be used in the future)
it will then ask you for the password, repeat use the htpasswd in the same way to create all your users (without the -c) or use webmin to create them under squid and then proxy authentication. After these changes restart squid, either thru webmin or with #squid -k reconfigure. The main problem with this method is changing passwords. There are several utilites that allow for this but it will require a working apache server on that machine, here is one example site http://sarg.sourceforge.net/chpasswd.php
with a few utilities
All changes to squid.conf or squidguard.conf required a restart of the squid server, squid ľk reconfigure to restart.