Web service with password protection

Configuring SoapHeader to webmethods will solve your problem.

In webservices messages will be transformed through wire in SOAP format.
SOAP basically contains SOAP Envelope which is collection of
SOAP Header (The data which is sensitive and need to be transferred usually credentials, Credit card details.... etc )
SOAP Body (Main result)
SOAP Fault or Error (Error message from service)

Define a class which implements SoapHeader and define 2 properties named UserName and Password.

ex:

public class CustomAuth: System.Web.Services.Protocols.SoapHeader
{
    public string UserName;
    public string Password;
}

Set the Soap Profile 1.1 to enable this security feature

Following is the service implementation

[WebServiceBinding(ConformsTo = WsiProfiles.BasicProfile1_1)]
public class TestService : System.Web.Services.WebService
{
     public CustomAuth myTestSvcAuthentication;

    [WebMethod()]
    [SoapHeader("myTestSvcAuthentication",Required=true)]
    public string DoSomething()
    {
        string _username =  myTestSvcAuthentication.UserName;
        string _password =  myTestSvcAuthentication.Password;
        if (CheckCredentials(_username, _password))
        {
            // Write your logic for DoSomething method
            return "Successfully done";
        }
        else
        {
            // return authentication failed message
            return new Exception("Authentication failed");
        }   
    }

    private bool CheckCredentials(string uname,string pwd)
    {
       try
       {
         // your database connection or active directory repository
         // login verification will be done here and return true
         // if credentials are correct if not return false 
      }
      catch(Exception ex)
      {
         //log and throw the error
      }
    }
}

Client Code

//add service reference in using section
using MyService;// as per your configuration

TestService svc = new TestService();
CustomAuth customAuth= new CustomAuth();

//Set your username and password as you made contract with Service owners
  customAuth.UserName = "Yoganand";
  customAuth.Password = "Yoga@123";

 svc.myTestSvcAuthentication = customAuth;

 Console.WriteLine(svc.DoSomething());

For your ref: http://msdn.microsoft.com/en-us/library/8728chd5(v=vs.80).aspx[^]

hope it will help you.. :)
Happy Coding